Splitting SIPs may not boost returns
Investing Rs 5,000 in SIPs: Why multiple mutual funds may not increase your returns
Systematic Investment Plans (SIPs) have become one of the most popular ways for people in India to start investing. With as little as ₹5,000 per month, investors can begin building wealth over time through Mutual Funds. However, many beginners believe that dividing this amount into multiple SIPs will give better returns. Experts say this is not always true.
A common assumption among new investors is that putting ₹1,000 each into five different funds is a smart way to reduce risk and increase gains. But according to investment experts, this strategy may actually make things more complicated without offering any real benefit.
Ashish Anand, a financial expert, explains that dividing a small amount into too many funds is an example of “diworsification.” This term was made popular by Peter Lynch, and it refers to over-diversification. Instead of reducing risk, it can increase confusion and lower returns.
Why too many sips can be a problem
When you invest ₹5,000 across five different SIPs, you are not truly diversifying your investment. Many mutual funds in the same category invest in similar stocks. This means that even though you are investing in different funds, your money may still be going into the same companies.
As a result, there is very little difference in how these funds perform. Instead of spreading risk, you are simply repeating the same investment in different forms. Experts say that this overlap reduces the benefit of diversification.
Another issue is the extra effort involved. Managing multiple SIPs means handling more paperwork, tracking multiple statements, and keeping an eye on different fund performances. For a small investment, this can become unnecessarily complicated.
Experts also highlight that the power of compounding works best when your money is concentrated in a good-performing fund. Splitting your investment reduces the overall impact of compounding because each fund gets a smaller amount.
To understand this better, consider a simple example. If you invest ₹5,000 in one fund that gives an average return of 12–13 percent, you could build a corpus of around ₹25 lakh in 15 years. But if you divide the same amount into five funds with slightly different returns, your overall return may drop to around 11 percent. This could reduce your final amount by ₹1.5 to ₹2 lakh.
This shows that more funds do not always mean better results. In fact, it can sometimes lead to lower returns.
How to choose the right strategy
Experts suggest that instead of focusing on the number of funds, investors should focus on choosing the right fund. The choice should depend on factors like age, financial goals, and risk tolerance.
For young investors in their 20s or 30s, time is on their side. They can take slightly higher risks and benefit from long-term growth. In such cases, flexi-cap or multi-cap funds are often recommended. These funds invest in companies of different sizes and can adjust their strategy based on market conditions.
For people in their 40s or 50s, stability becomes more important. If the goal is to achieve something within 5 to 7 years, large-cap or balanced funds may be a better option. These funds are generally less risky and provide more stable returns.
Another important factor to consider is the fund manager’s experience and the expense ratio. A skilled fund manager can make better investment decisions, while a lower expense ratio means you keep more of your returns.
Experts also advise investors not to try to predict the market. Instead, they should focus on their long-term goals and stay consistent with their SIP contributions. Regular investing, even in a single good fund, can create strong results over time.
Diversification does have its place, but timing is important. Experts suggest that investors should think about adding more funds only when their monthly investment increases to around ₹15,000 to ₹20,000. At that level, diversification can be more meaningful and effective.
Until then, sticking to one or two good-performing funds is usually enough. This approach keeps things simple and allows investors to focus on long-term growth.
In conclusion, investing ₹5,000 in SIPs is a great way to start your financial journey. However, splitting this amount into multiple funds does not guarantee better returns. In many cases, it can reduce efficiency and create unnecessary complexity.
The key to successful investing is not the number of funds but the quality of your choices and consistency in investing. By selecting the right fund and staying disciplined, investors can achieve their financial goals without overcomplicating their strategy.
In the long run, simple and focused investing often works better than spreading money too thin.
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