If you are incurring huge loss in mutual fund SIP, then know what options you have now.

New Delhi. Due to Coronavirus (Covid19), business activities have almost stopped all over the world. Due to this, there has been a huge decline in the stock markets. The Sensex fell by 40 percent in March. Its effect is also visible on investments made in equity schemes of Mutual Funds Return. Investors have started worrying about their portfolio. But if we look at the performance of mutual fund schemes in comparison to the market, during the last 5 years most of the schemes have underperformed i.e. given negative returns. However, experts say that there is no need to panic. Whenever there has been such a huge decline in the stock market. At times, investors have received returns of more than 100 percent in the next three periods.

Poor performance of mutual funds continues for last 5 years- According to the S&P Indices Versus Active (SPIVA) report, most funds have underperformed in the 5-year period till December 2019. The thing to note here is that most of the asset management companies (AMCs) lure investors by saying that to avoid short term fluctuations, investors should invest money for medium to long term.

SPIVA’s study shows that among equity funds, 82.29 percent large cap funds, 78.38 percent equity linked saving scheme funds (ELSS) and 40.9 percent mid-small cap equity funds have underperformed compared to their respective indices in 5 years.

If investors think that they will get better returns by investing for more than 5 years, then their belief may also be wrong.

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Akash Jain, associate director of global research at S&P Dow Jones, says most actively managed large-cap equity funds have performed poorly. Over the 10-year period till December 2019, 64.8 per cent of large cap funds have performed worse than the BSE 100.

Mid and small cap funds have given better returns in the short term – The situation does not look good even in the short term. If we look at the 1-year period till December 2019, BSE 100 has gained 10.92%, while during this period, 40% of the large cap equity funds have given lower returns than the benchmark. Mid and small category funds have performed better. Their returns have been better than the BSE 400 Mid-Small Cap Index, irrespective of the investment tenure.

What do we do now- Firoz Aziz, Deputy CEO of Anandrathi Wealth Management, says that if we look at historical data, after such a huge fall, mutual funds get returns of up to 100 percent for the next three years. That is why this decline can be taken advantage of. In such a situation, advising SIP investors to top up their SIP or continue as before does not seem justified. The better way is to ‘Pause’ it for at least 3 months by talking to your mutual fund house. It seems that after 3 months the impact of Corona crisis will reduce. After that release it again as before.

Asif Iqbal, Research Head, Escort Security, says that there is no need to panic at this time, but to keep your investment intact. Long term used to mean 10 years or more, but today long term has become a week. In personal finance, long term still means 10 years or more.

It is beneficial to make long-term investments in equity i.e. stock market and its related mutual fund schemes. Investing in diversified equity funds through SIP is for your long term goals.

Goals like retirement, your child’s higher education are far away. You will need this money after many years. In such a situation, if you are getting negative returns from SIP now, then what is the need to panic? Be happy that you are investing at a lower level and buying more units.

what is sip
SIP means (Systematic Investment Plan). Many investors also call it SIP. It allows the investor to invest a fixed amount regularly in a mutual fund scheme. In this way, it is an easy way to invest in mutual funds. In this, you buy mutual fund units every month by withdrawing a small amount from your earnings. A regular investment for a few years turns into a big investment later on.

This is how you benefit
You can invest through SIP in any mutual fund scheme for one year, two years, five years or longer term. The mutual fund company allots the units of the scheme to you from the amount of the first installment of investment. The number of units you get depends on the Net Asset Value (NAV) of the unit.

understand in simple words
Suppose you have invested Rs 1000 through SIP in the first month. If the price of one unit of the scheme in which you have invested is Rs 20, then the mutual fund company will allot you a little less than 50 units. You will not get 50 units because the asset management company charges you a small amount for managing the fund, which is called expense ratio. As you keep investing, the number of your units keeps increasing. Hemant Beniwal, Director of Arc Primary Advisors, says that as soon as you invest money in SIP, that money goes for investment. Therefore your money remains invested for a longer period.

You get profit on decline
Investing in mutual fund schemes through SIP reduces the average purchase price of units. This is called cost averaging method. What is this? Actually, fluctuations continue in the stock market. You don’t know when the market will go up and when it will go down. Every month, the mutual fund company buys shares or other securities with your money invested in SIP.

In this way, when the share price remains low, you get more units. When the share price is high, you get fewer units. In this way, if seen over a period of one year, the average purchase price remains relatively low. This is called cost averaging benefit. Hemant Beniwal, Director of Arc Primary Advisors, says that this is the biggest advantage of investing through SIP, because you cannot know when the market will rise and when it will fall.

discipline in investment
A major advantage of investing through SIP is that it keeps you disciplined in terms of investing. Every month a fixed amount goes from your bank account to the mutual fund company. Beniwal says that once you open a SIP, you will never spend more than necessary. You know that a fixed amount will be withdrawn from your account every month on a fixed date and will go to the mutual fund company. In this way discipline is maintained in investment.

If you are thinking of investing more in lump sum or by increasing the SIP amount, then do so only if your financial goals are far away. Don’t invest just because the market is down. Do not make any investment in panic. Whether it is related to the sale of shares or their purchase.

Right now we are in a war-like situation. Remember that now is the time to apply what you have learned in good times. For example, you have learned during peace that equity mutual funds are for long term. You have learned to stay calm in times of decline. There have been declines before also. We are in a period of decline. There will be further decline also. This is an aspect related to any economy. So stick to the basics. Take care of yourself.

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Tags: Corona, corona virus, Coronavirus, Coronavirus in India, mutual fund, mutual fund investors, mutual funds

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