Why Switching SIPs Can Hurt Long-Term Returns

Why Always Stopping a SIP in a "Bad" Fund and Starting in a "Star Performer" Might Be Hurting You

Quick Summary:
Stopping a SIP in a low-performing fund and switching to a recent top performer might seem like a smart move. But it often leads to poor timing, broken compounding, and missed recoveries. This post breaks down why sticking with your SIP may be wiser than chasing past winners.

Let’s Talk Reality

I’ve seen this more times than I can count. A fund’s performance dips for a few quarters, and suddenly investors hit the panic button: “Stop the SIP!” they say. And what do they do next? Start a new SIP in a fund that just delivered, say, 25% last year.

Seems logical, right?

But here’s the thing: investing isn’t like picking the winning cricket team after the match is over. Past performance, while useful for analysis, is not a promise. Actually, it’s often a trap.

Why Do People Keep Doing This?

Well, honestly… it's emotional.
Nobody likes to see red in their portfolio. It makes us uncomfortable. It feels like something must be wrong with that fund.

But here’s what’s often missed:

• Funds go through phases, just like markets and sectors do.
• Underperformance in a diversified, well-managed fund may just mean it's going through its natural cycle.
• Outperformers of today may already have priced in the best returns—the rally may be behind, not ahead.

In my experience, this reaction is rooted in a deeper problem: we’re too focused on recent returns and not enough on long-term purpose.

What Happens When You Keep Switching?

Let’s say you stop Fund A after it gave 4% last year. You start a SIP in Fund B, which gave 20% last year.

Three things usually happen:

1. You Buy High, Emotionally

By the time the “star” fund appears in performance charts, it's already at or near its peak cycle. You may be entering at expensive valuations.

2. You Miss the Turnaround

The fund you abandoned? It might have been loaded with undervalued sectors or stocks just before they began recovery. Long-term returns often come after a dry spell.

3. You Break Compounding’s Back

SIP works because of time and consistency. Breaking that midway disrupts rupee cost averaging and delays wealth creation.

It’s like pulling a sapling out of the soil every few months to check if it's growing. You’re hurting it without realizing it.

A Real Example (Without Names)

A few years ago, a client of mine stopped his SIP in a diversified fund that was underperforming for two years and moved to a small-cap fund that just had a blockbuster run.

Three years later, the old fund rebounded strongly. The small-cap fund? It corrected sharply. Net result: loss of faith, regret, and lost time.

He told me, “I thought I was making a smart move.”
I didn’t say anything. The market had already said it all.

Quote to Remember

“Smart investing isn’t about being right every time—it’s about staying the course when it matters most.”

FAQ

Q1. Should I never stop a SIP, even if the fund is doing badly?
Not necessarily. But the decision should be based on fundamentals, not just 1- or 2-year returns. If the fund's strategy, team, or consistency has collapsed, sure—rethink it. But don’t react impulsively.

Q2. Is it better to switch to top-performing funds?
Only if the current performance is sustainably driven by process—not by luck, momentum, or sector rallies. Jumping too late often means buying at the top.

Q3. How long should I wait before judging a fund?
Usually 3 to 5 years. Especially for equity funds. Volatility in the short term is normal. Focus on whether the fund is staying true to its style and objective.

Closing Thought

If you’ve been hopping from fund to fund, always chasing returns, maybe it’s time to pause. Ask yourself: Am I investing for excitement… or for outcomes?

The SIP isn’t magic. But when left alone and fed regularly, it quietly works wonders over time.

If this hit a nerve, maybe we should talk. Offline, of course.