Investors may be tempted to worry when their mutual fund SIPs fail to generate returns for an extended period. However, Prashant Jain, Founder of 3P Investment Managers, said at The ET Alpha Wealth Summit 2.0 that investors should not be concerned about weak SIP returns as long as the Indian economy and companies continue to grow.

Speaking at the summit, Jain said stock markets can go through periods of weak or no returns even as the economy continues to expand. Citing the experience of the past five decades, he noted that markets have failed to deliver returns in roughly one out of every three years, despite continued economic growth.

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Jain said that India has continued to progress over the past several decades, even as the stock market has gone through multiple cycles of booms and busts. According to him, the country's economy continues to move in the right direction, while market narratives, sectors and actors keep changing.

He added that the lack of returns over the past two years should not necessarily be viewed negatively. According to Jain, Indian market valuations had been meaningfully above their averages two years ago, while India's premium over emerging markets had reached a lifetime high. Global money also moved towards artificial intelligence-related markets such as Korea and Taiwan, while higher Gulf oil prices and US interest rates weighed on emerging markets.

Jain also highlighted the large supply of stocks in the primary market. While strong domestic flows into equities have continued, the supply of new equity has limited the ability of stock prices to rise in the near term. However, he said this is positive for the economy because providing equity capital to businesses supports economic and GDP growth.

According to Jain, SIPs are ideally suited for people who earn and invest regularly. For a long-term investor, he argued that a flat market for several years can be more beneficial than a market that rises rapidly, because investors can deploy more money at lower index levels.

Sharing his own experience, Jain said that when he started working in 1991, the index remained flat for about 11 years. The Nifty in 2003 was lower than where it was in 1992. Despite this, he continued investing and said the experience ultimately worked out well.

“There is no reason you should worry about SIPs or lack of returns on them,” Jain said, adding that investors should worry when the economy stops growing or when something is wrong with the country. As long as India and its companies are doing well, weak SIP returns should not by themselves be a reason for concern.

Jain also cautioned against trying to forecast equity returns over the short term. He said equities are difficult to predict in the short and medium term, while the longer term is relatively easier to assess. He added that if markets remain weak or fall further, valuations could become more attractive.

Jain described equities as a simple but difficult asset class. According to him, investing in equities requires reasonable understanding, patience and discipline, but following these principles consistently is not easy.

He said India's economic growth has remained relatively consistent despite various challenges, supporting the longer-term case for equities. However, investors often struggle because they focus on what is happening in the market at present rather than taking a longer-term view.

Jain also cautioned investors against chasing global equities simply because they have performed well recently. He said many investors may not fully understand these markets and could end up chasing momentum. He argued that weak returns from Indian equities over the past two years should not automatically lead investors to look for alternatives.

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According to Jain, investors often extrapolate past returns into the future. Popular investment themes can eventually become expensive, and their subsequent returns can disappoint. He said investors should therefore avoid making decisions solely on the basis of recent performance.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)

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