Should you switch SIPs to last year’s top-performing fund? This study has the answer

Many investors often shift their SIP investments to the market-cap segment that has recently delivered the highest returns, hoping the strong performance will continue. However, an analysis of historical data suggests that chasing last year’s top-performing category does not necessarily translate into better long-term returns.

An analysis by WhiteOak Capital Asset Management shows two approaches. One investor switches SIP investments every year to the previous year’s best-performing market-cap category (large-cap, mid-cap, or small-cap), while another stays invested in the chosen category.

Let’s find out which investor earns better returns over the years.

Case study 1: Starting a SIP in the mid-cap index fund

The first scenario assumed an investor who started a SIP in the Nifty Midcap 150 TRI. At the beginning of each financial year, he shifted future SIP investments to the index that had delivered the highest return in the previous financial year.

For example, the investor started SIP in the mid-cap index in FY2006. Since the large-cap index was the best-performing category in FY2007, the investor switched the SIP to the large-cap index in FY2008. The same process was repeated every year. As of 31 May 2026, this strategy generated an XIRR of 14.76%.

However, an investor who remained invested in the mid-cap index throughout the period without making any switches earned an XIRR of 17.05%.

The difference highlights a common market view. The best-performing category in one year does not necessarily remain the leader in the next.

What do rolling returns show?

The study also examined 10-year rolling SIP returns across different periods. The 10-year rolling SIP return analysis covers the period from 1 April, 2005 to 31 May, 2026. The first 10-year rolling return observation begins on 1 April, 2015.

The average 10-year SIP XIRR for the switching strategy stood at 15.75%, compared with 17.55% for an investor who remained invested in the mid-cap index.

In simple terms, staying invested in the mid-cap index worked better than chasing last year’s top performer.

Case study 2: Starting a SIP in the small-cap index fund

The study observed a similar trend for an investor who started a SIP in a Nifty Smallcap 250 TRI index fund and switched annually to the previous year’s top-performing category.

As of 31 May 2026, the switching strategy generated an XIRR of 14.75%, marginally higher than the 14.63% earned by an investor who remained invested in the small-cap index throughout the period.

What do rolling returns show?

The rolling return analysis also showed slightly better returns for the switching strategy. The average 10-year SIP XIRR stood at 15.75% for the switching strategy, compared with 14.91% for the small-cap index.

Unlike the mid-cap example, where staying invested clearly gave better returns, the small-cap example shows that switching to the previous year’s best-performing category delivered slightly higher returns.

However, the margin of outperformance was relatively small, suggesting that the benefits of frequent switching were limited even in this case.

What does this mean for investors?

The findings highlight an important distinction between historical performances and actual returns over the long run.

In the mid-cap example, both the final SIP return and average rolling returns favoured staying invested. In the small-cap scenario, the switching strategy delivered a slightly higher rolling return.

This shows that market leadership changes frequently. Investors who switch based on the previous year’s performance may end up buying into a segment after much of its rally has already occurred.

Frequent switching can also reduce the benefits of compounding, as investors keep changing investment categories instead of allowing their investments to grow over the long term.

For long-term SIP investors, consistency and discipline may prove more effective than repeatedly chasing the latest market winner.

Disclaimer: This is purely for educational/ informational purposes and should not be taken as any sort of investment advice. Always consult a SEBI-registered advisor before making any investment decisions.