How to Truly Understand the Power of SIP
Every third person you meet today knows the word “SIP.” Ask them what it stands for, and they’ll say it confidently — Systematic Investment Plan. Ask them to explain why it works, and the confidence usually disappears.
I’ve explained rupee cost averaging more times than I can count. I’ve talked about how a falling NAV isn’t necessarily bad news for an SIP investor, because it means your fixed monthly amount buys you more units. I’ve drawn the curves, walked through the formulas, used the analogies. And still, for a good chunk of people, the concept lands only halfway.
Here’s what I’ve learned over the years: most people don’t process concepts. They process data. They process charts. They process stories with numbers attached. So instead of another explanation, let me show you one.
Going back to the year 2000
Disclaimer first: this is a real fund, picked somewhat deliberately for its dramatic history — not because it’s a “good” or “bad” fund to invest in today. It’s one of the rare cases where the NAV stayed below its own launch price for a continuous period of roughly five years. That makes it a brutal, honest test case for whether SIP actually works even in the worst-case scenario — not just in a rising market.
The fund: Prudential ICICI Technology Fund, launched in March 2000 — right at the peak of the dot-com bubble, right before the crash that would define the next few years for tech investors globally.
The setup
- Launch date: March 2000
- Launch NAV: Rs. 10
- SIP amount: Rs. 2,000 per month
- First month’s units: 2000 / 10 = 200 units
Now watch what happens next — because this is where most people would have panicked and stopped.
The fall
The NAV didn’t just dip. It collapsed.
- By January 2001, the NAV had fallen to Rs. 2.19 — a fund that opened at Rs. 10 was now worth less than a quarter of its launch price.
- It hovered around Rs. 3.29 for the better part of the next two years, through the end of 2002.
- By December 2003, it had crawled up to Rs. 5.22 — still nearly half of where it started.
- By December 2005, it had reached Rs. 7.02 — better, but still below the original launch NAV of Rs. 10, almost six years later.
Think about that for a second. If you’d invested a lump sum of Rs. 2 lakh in March 2000, by the end of 2005 your investment would still be underwater. Anyone judging this fund purely on “has the price recovered?” would have written it off as a disaster.
But here’s the part almost nobody accounts for
Get Wealthwavesindia’s stories in your inbox
Join Medium for free to get updates from this writer.
Somewhere in the middle of that chaos, an investor kept their SIP of Rs. 2,000 running — every single month — from March 2000 to March 2005. No stopping when the NAV crashed. No pausing during the “hovering” years. No panic-selling in 2001 when the fund had lost nearly 80% of its value.
What they were actually doing, without necessarily realizing it, was this:
- When the NAV was Rs. 10, they got 200 units for Rs. 2,000.
- When the NAV crashed to Rs. 2.19, that same Rs. 2,000 bought them roughly 913 units.
- When it was hovering at Rs. 3.29, they picked up about 608 units every month.
Every crash was quietly loading their account with cheap units. The falling price wasn’t erasing their money — it was working for them, silently, month after month. This is rupee cost averaging in its rawest form: not a theory in a textbook, but a mechanical, unemotional process that turns volatility into an advantage, provided you don’t interrupt it.
Now, take a guess
A fund that hadn’t even returned to its own launch price after five years. An investor who lived through an 80% drawdown and a slow, grinding recovery. What kind of return do you think that SIP generated?
Hold your breath.
A staggering ~22.06% CAGR.
Not despite the crash — because of it. The very thing that looked like a failure on the NAV chart was, for the SIP investor, a five-year unit-accumulation machine.
Why this example matters more than the theory
This is the piece that gets lost when SIP is explained in slides and formulas: the return of an SIP has almost nothing to do with where the NAV ends up, and everything to do with the path it took to get there.
A volatile, falling-then-recovering market is often better for an SIP investor than a smoothly rising one, because volatility is what generates cheap units. A fund that goes straight up in a straight line gives you fewer bargains along the way.
This is also exactly why SIP discipline is harder in practice than in theory. It’s easy to keep investing when the NAV is going up — everyone feels smart doing that. It’s brutally hard to keep investing when your statement shows a 70–80% loss, month after month, for years. The Prudential ICICI Technology Fund investor who stayed the course from 2000 to 2005 wasn’t reading the same chart that panicked investors were reading. They were, whether they knew it or not, playing a completely different game — accumulation, not price prediction.
The takeaway
If you’re relying on concepts and averaging formulas to convince someone about SIP, you’ll get a nod and a half-understanding. Show them a real chart like this one — a fund that crashed 80%, stayed underwater for five years, and still delivered over 20% annualized returns to a patient SIP investor — and the concept usually clicks in a way no explanation ever could.
SIP isn’t a bet on the market going up. It’s a bet on your own discipline to keep buying through the times when nobody else wants to.
#SIP # MutualFund #Wealthwavesindia #Financial Freedom #FIRE #Women’n’money #NJ Wealth #Investing #Longterm #Goals #Personalfinance
Note: This example is illustrative, based on historical NAV data of a specific fund during a specific period, and is meant purely to demonstrate the mechanics of rupee cost averaging. Past performance of any fund, including the one discussed here, is not indicative of future returns. This is not investment advice — please evaluate any fund on its current merits before investing.
