For many investors, a long-term investment journey starts with an SIP. You trust the compounding power of time and continue making regular contributions.
But investing in an SIP is just one part of the wealth-building process. How do you evaluate whether your money is growing at the expected rate? Or whether your investment is aligned with your financial goals?
Here’s when tracking your SIP returns becomes relevant. Interestingly, measuring your SIP returns can be slightly different from evaluating how well a one-time investment performs.
The reason is that each investment you make remains exposed to market conditions for a different duration. To make the process simple for you, we have discussed the five most relevant ways to effectively track the returns on your SIP investing.
5 ways to track ROI for SIP investing
The performance of your SIP is easier to understand when you evaluate the returns based on certain benchmarks or parameters. Here are five methods that could help you measure the returns and compare the performance of your mutual funds.
- Track total invested amount and current value (Absolute return)
The simplest way to measure your returns is to compare how much you have invested and the current value of your portfolio. Suppose you invested ₹1 lakh and the current value is ₹1.15 lakh; your investment has generated a gain of ₹15,000, which comes to a 15% profit.
Although this provides you with a quick view of absolute gain or loss, it doesn’t factor the time element into the calculation. SIP instalments are invested at different times. So, the money you invested a couple of years ago had more time to grow than the instalment made last month.
- Use XIRR to measure actual SIP performance
When you invest through SIPs, XIRR can help you determine the actual return. It factors in the timing of the individual cash flows. Every instalment in an SIP is treated as a separate investment on a particular date. Your current portfolio is considered the final value.
XIRR is different from absolute returns as it helps you with an annualised view of how the investment has performed over time.
- Compare returns against the right benchmark
A return figure becomes more relevant when there’s an appropriate benchmark or reference point. For instance, when you invest in equities, you may consider the Nifty 50 as a standard benchmark for growth. When you invest in a large-cap or a mid-cap fund, your goal would be to outperform the Nifty 50.
The final returns are influenced by market conditions, investment strategy and the investment horizon. Investors must compare performance over a reasonable period instead of considering short-term returns for better context.
- Track performance against your financial goal
The purpose of your investment gives you one of the most relevant reference points to evaluate the performance of your SIP. When you invest to build long-term wealth, re-assess your portfolio from time to time. This helps you track whether the growth trajectory is strong enough to help you build the desired corpus.
Use an SIP investment calculator to estimate how regular contributions may grow over the long term. Accordingly, you can determine how much to in% invest to achieve a specific financial goal.
- Review your SIP through your investment platform
Modern investment platforms make it easier to monitor your investment. On the dashboard, you’ll find relevant details like total contributions, current value, gains and the performance of your portfolio. This ensures you don’t need to track every SIP investment manually.
Feature-rich platforms bring your portfolio data and investment-related tools in one place. That’s why investors look for the best stock investment platform to create SIPs with all the information they need.
Conclusion
When you grow wealth, make sure to use the right benchmarks to track your portfolio over time. While absolute return gives you a basic picture, XIRR helps you measure annualised performance for SIPs. Also compare relevant benchmarks and consider your goals as you review your portfolio at regular intervals.
For a long-term goal, evaluate your portfolio quarterly or once every six months. A comprehensive annual review can further help you monitor the growth trajectory and rebalance your portfolio, if necessary.