Core answer: A fund SIP (定投) invests a fixed amount monthly: returns depend on the path, not just the endpoint. ¥2,000/month for 3 years (¥72,000 invested) ending at ¥85,000 = +18% total, but XIRR ≈ 11.3%/yr because later installments had less time. SIP shines in V-shaped markets (buying cheap units in the dip) and underperforms lump sum in steady bulls — its real edge is behavioral: it removes timing decisions.
The XIRR truth (why total% misleads)
Each installment is a separate investment with its own holding period. ¥1,000 invested 12 months ago at +10% and ¥1,000 invested 1 month ago at +0.8% both show in your "total". Only XIRR (money-weighted) answers "what rate did my money actually earn". Excel: =XIRR(amounts, dates) with outflows negative.
SIP vs lump sum: the honest comparison
| Market shape | Winner | Why |
|---|---|---|
| Steady bull | Lump sum | more money compounding longer |
| V-shaped crash-recovery | SIP | buys cheap units at the bottom |
| Steady bear | SIP (loses less) | but both lose — SIP isn't magic |
| Sideways choppy | SIP slightly | averages the noise |
Historically markets rise more often than they fall, so lump sum wins ~2/3 of the time on average — but SIP wins the behavioral war: people actually DO it, month after month, while lump sums sit in cash "waiting for a dip".
Worked examples
Example 1 — The V-shape. ¥2,000/month into an index that falls 100 → 60 → 100 over 24 months: units bought = 20 + 40 (cheap!) + ... final value > lump sum's flat result. Volatility is the SIP buyer's friend when the endpoint recovers.
Example 2 — The 5-year CSI 300 SIP. ¥2,000/mo, 2019–2024 (¥120k in): through the 2021 peak and 2022–2024 drawdown, XIRR lands ≈ −2% to +4% depending on fund — proof that SIP reduces timing risk, not market risk. Pair with rebalancing and a horizon ≥ 5–7 years.
Example 3 — Stopping rules. Two sane exits: (a) target-based — redeem at +20~30% XIRR and restart; (b) horizon-based — de-risk 2 years before the money is needed (tuition, down payment). "Stop profit, never stop loss on index SIP" works only with genuinely long horizons and broad indexes.
Common mistakes and myths
- "SIP guarantees profit" — in a 5-year bear, SIP loses too; it controls behavior, not markets.
- Stopping after a loss — quitting at −15% crystallizes the loss and skips the cheap units that power the recovery; the V-shape only pays those who stay.
- SIP on the wrong asset — SIP into a single stock or a dying sector just averages into oblivion; broad low-cost index funds are the suitable vehicle.
- Ignoring fees — 1.5%/yr active fund vs 0.5% index: at 8% gross over 20 years the fee gap consumes ~20% of your final wealth.
- Judging on total return — compare XIRR against the same-period lump-sum and the index, not against the nominal total.