INSUBCONTINENT EXCLUSIVE:
There is a sense of panic among investors using the SIP route to invest in equity mutual funds on seeing returns turning negative due to
ET dwells on the common questions asked in this situation:
I have paid my SIP instalment every month for the last one year
However some schemes are giving me a negative return
What should I do?Many financial planners suggest investors should invest using the SIP route in equity mutual funds to meet their long term
financial goals and have a minimum time frame of five years
In the short term, returns could be disproportionate when annualised
For example, in 2017, we saw one year SIPs of mid-cap funds delivering as high as 30-40% returns, while right now some SIPs in the same
funds are showing negative returns
The equity markets will go through a number of ups and down, and in some of these times, they are bound to see negative returns
Eventually analysts believe returns follow nominal GDP growth rates
Hence investors should continue their SIPs for the long term without worrying about negative returns in the near term.
I will continue with
my SIP amount every month
Should I change the scheme that has not done well now?Ideally investors should give the fund manager three to five years to perform and
should not judge performance in a period as short as one year
If the fund underperforms its benchmark even over a three-year period, then investors could take a closer look at it and shift to another
fund after consulting their advisor
Alternatively if the mandate of the scheme or the fund manager has changed, they could consult an advisor and take a decision.
For what
duration should I continue my SIP?Financial planners suggest investors link each SIP they do to a particular goal and continue with the SIP
Distributors often suggest a perpetual SIP for operational ease
It can be closed by giving a written instruction to the fund house to close it
Investors can choose 3, 5 or even 10 years tenure or link it to their long term goal.
If I have more money, can I add it to a fund giving
negative return?Use the downturn in the markets to increase your equity allocation
If there is a salary raise, increase your SIP amount proportionately by using a top up facility provided by the fund house
Do not be disturbed just because the scheme is giving negative returns in the near term
Salaried employees get an annual raise every year
It is important that as your income grows, the amount of investment should grow too.