Somebody messaged me in July. Fourteen months into their first SIP, and the message was basically: is this thing working? They'd put in a sum they could tell me to the rupee, and the value on the screen was a bit more than that. Not much. Certainly not enough to feel like anything.
I get some version of that message every few weeks, and it's almost always in the first two years. It's worth explaining properly, because the people who stop mostly stop here, and they stop for a reason that isn't a reason.
What's actually going on in year one
Think about where each instalment sits.
The one you paid this month has been invested for a few days. Last month's, for a month. The very first one has had a year. So at the twelve-month mark, your money has been invested for an average of about six months, not twelve, even though you've been at it for a year.
That's the whole explanation, and it's arithmetic rather than anything about markets. Most of your money is new. New money hasn't had time to do anything.
People compare their total invested against the current value and expect the gap to mean something. In year one that gap is measuring almost nothing.
The part that makes it feel worse
There's a second thing going on, and it's psychological rather than mathematical.
In year one, your monthly instalment is enormous relative to your total holding. If you've put in six instalments, the seventh changes your balance by a seventh. So the balance moves mostly because you added money, not because anything grew, and you can feel that.
By year eight, the same instalment is a small fraction of the total and the balance moves for other reasons. That's the point at which people say it "started working". It didn't start. It became visible.
What you should be checking instead
Not the value. Three other things, and they take two minutes.
Did every instalment actually go through? This is the one that genuinely matters in year one and nobody checks it. A failed debit in month four that nobody noticed is a real problem, unlike the number you're staring at. Our guide on a missed SIP payment covers what it looks like.
Are the units going up? They are, every month, regardless of what the value says. That's the thing you're actually accumulating.
Is the amount still comfortable? If it isn't, that's worth acting on now rather than in month twenty when it becomes the reason you stop.
None of those is the value on the screen, and that's deliberate.
What if the number is red
It might be. Fourteen months is easily short enough for that, and a first-year investor seeing a negative number tends to conclude they did something wrong.
They almost certainly didn't. A red number in year one means the price is currently below where you've been buying, which is uncomfortable and is also the situation where a monthly instalment does its most useful work, since the same amount is buying more units. Our post on what a red number actually means goes through it properly.
The instinct is to stop until things improve. That instinct is the single most expensive one in this business, because it means you bought at the higher prices and skipped the lower ones. Our page on rupee cost averaging explains why the mechanism only works if you don't do that.
If you started with a lump sum instead
The first year looks different and it's worth saying, because the reassurance above doesn't fully apply.
A lump sum has been fully invested from day one, so after twelve months the whole amount really has had a year. The number you're looking at means more than it does for somebody twelve instalments into a SIP.
What it also means is that a fall in the first year is felt on everything at once, with no new money going in at the lower prices. That's harder to sit with, and it's the honest argument for spreading a large amount in over some months rather than putting it in on one day. Our page on lumpsum investment goes through both sides.
Either way the horizon question is the same. Twelve months is not a period over which an equity holding was ever supposed to be judged.
When checking becomes the problem
Here's something I'd say to almost every new investor.
You can look at the value every day now. In 2014 you couldn't, and I'm not convinced the change helped anybody. Daily checking of a fifteen-year holding gives you no information and a lot of feeling.
Once every few months is plenty in the early years. Once a year is fine after that, with a proper look at what you hold, which our guide on reading your statement covers.
I'm not saying ignore it. I'm saying the checking frequency should match the horizon, and for money you won't touch for a decade, monthly is already often.
What I would get right in month one instead
If you're just starting, or just started, these four decisions do more for your year one than anything you can do about the value.
Put the date a few days after your salary arrives. Not a date somebody told you was lucky. A date where the money is reliably there, so the debit doesn't fail.
Pick an amount you'd keep paying in a bad month. Slightly less than you think. You can always raise it, and raising it feels good, while cutting it feels like failure and often turns into stopping.
Decide now what you'll do if it falls. Write it down if that helps. Deciding during a fall isn't really deciding.
Tell one person in your family it exists. Takes thirty seconds and saves somebody a great deal later.
None of those four is about scheme selection, which is the part people spend their first month on.
The thing nobody tells you at the start
The first few years of this are boring on purpose.
Nothing dramatic is supposed to happen. You're accumulating units at various prices and the interesting part is a long way off. Anybody who told you it would feel exciting in year one was selling you something, and what they were selling probably wasn't a fifteen-year holding.
What actually decides how this turns out is whether you're still doing it in year eight, and whether the amount went up along the way as your income did, which our page on the step-up SIP deals with. Both of those are decisions you make in the boring years.
When it starts to look different
People ask when it stops feeling like this, so here's my honest observation rather than a rule.
Somewhere around year three or four, two things have changed. Your earliest instalments have had real time behind them, and your monthly amount has become small relative to the total. So the balance starts moving for reasons other than you adding to it, and that's the first time it looks like an investment rather than a savings box.
It's also the point where people who kept going stop asking me this question, and the ones who stopped in year one aren't around to see it. That's the part I find hard to convey to somebody at month fourteen, because the only proof is the thing they'd have to wait for.
Which is why I'd rather talk about whether the amount is sustainable. That question you can act on today.
So what should year one feel like
Uneventful. That's the honest answer.
The debits go out, the units accumulate, the number does roughly nothing interesting. If that's your experience, it's working exactly as it should, and the fact that it doesn't feel like an achievement is the reason so few people get to year eight.
If you're in that first stretch and it feels pointless, that's the most normal thing in this business. Myfolios is an AMFI-registered mutual fund distributor (ARN-145870) working since 2014, and talking somebody through a boring first year is a real part of the job, not an interruption to it.
