personal finance

SIPs in equity mutual funds are giving negative returns. All you need to know

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 market downturn. 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 to 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.

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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 till the goal is reached. 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.


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