What Should You Do When Your SIP Returns Turn Negative?
Have you started your investments in equity mutual funds via SIP just 3 or 6 months before? Well, we are sorry as in most of the cases the annualized returns would likely be in negative. If the bet would have been in mid caps or small-cap funds, then the gains would be even less.
In the recent times of market correction or volatility(as it’s often referred to as), people have started doubting the existence of SIP investment. Some are complaining that they are getting poor returns, some are willing to exit, and there are other few who are comparing SIP returns with other investment products such as FD and RD.
The experts at MySIPonline have deeply studied every facet of the problem and have come up with a sure-shot answer for all those investors who are worried due to lesser returns. Here, we have broadly explained the three cases that an investor in the equity market should consider before making any decision. So, let’s get started!
- When the market falls, equity funds are bound to fall. It doesn’t matter whether you invest via lump sum or SIP, in case the market is volatile even for a short-term, your funds will also get affected. But this is not all. Because when you’re investing via SIP, you have the power to make the best of such dips.
Let’s understand how it works.
Suppose you are investing Rs 20,000 in an XYZ large-cap fund via SIP. Assuming the NAV to be Rs 220, thus in June, the units which were allocated to you would be 90. The same SIP would have fetched 95 units at the end of June with the drop of NAV from Rs 220 to Rs 211.
From one end, it is clear that the fund has dropped its performance, which is always a case for a short-term. But it should also be checked that the investment here is effectively being averaged. Therefore, as your average cost goes down in the case of SIP, the returns get better with time in the long run.
- It is advisable to review the Internal Rate of Returns(IRR) of the scheme for three months to 6 months period before investing in via SIP mode. In the period between January end to June end, the Nifty 500 TRI index fell about 1.56% for which the SIP IRR was -7.3%. The reason behind it was that it considers the time-value of the money and annualizes it. This could be more sensible if the period is of more than one year, however, in the short-run, the losses seem to be huge. In short, the loss you may have experienced today is not as big as it looks.
- Continuing with the same instance that we discussed in the point 1, the worst you can do to your investment is exiting your SIP at your last installment when the NAV of the scheme was Rs. 220. This way, you are depriving your investment to cherish the good days of cost averaging. The SIP returns may never seem enticing unless or until you provide them the chance to average freely.
Last But Not Least
The volatile market, which is a case now, is a good opportunity for your SIP to help them do its task in an efficient manner. Investors should avoid checking returns from time to time and react due to any sudden ups and downs. If you want to seek experts’ guidance in this regards, connect with us at MySIPonline as per your convenience.