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SIPs in equity mutual funds are giving negative returns. What should you do?

Financial planners point out that equities are a volatile asset class and keep moving up and down.

, ET Bureau|
Updated: Aug 16, 2019, 02.42 PM IST
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SIP returns for many investors in mid- and small-cap funds in the last one year are negative after the sharp market correction. The key is to choose a fund wisely and keep a long-term outlook and invest more during the downturn to reap good returns when the markets move up.

The scheme in which I started my SIP a year ago is giving me negative returns. What should I do?
Financial planners point out that equities are a volatile asset class and keep moving up and down. Investors should not worry about their SIPs getting negative and should continue with them. They say investors should start SIPs with a long-term time frame of 5 -10 years. During this long cycle, the ups and down, will help investors in rupee cost averaging. For example, in 2017, we saw one year SIPs of mid-cap funds delivering as high as 30-40% return, while most of these funds are showing negative returns for the last one year. In the long term, equity market returns follow nominal GDP growth rates.

Do I need to change my scheme since the SIP returns are negative?
Wealth managers feel one year is too short a period to judge a schemes and its returns. Investors should put money for the long term and give a fund manager at least three-five years to perform. 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.

I have run a SIP for 1 year, how much more time should I give?
Most fund houses stipulate a minimum time frame of six months for the SIP. Investors can choose any tenure they wish which could be 3, 5 or even 10 years or link it to their long term goal. Investors have the choice of opting for the perpetual option, which means the SIP will continue till the investor gives an instruction to the fund house to close it. Financial planners suggest investors link each SIP they do to a particular goal and continue with the SIP till the goal is reached.

Should I top up my equity mutual fund SIP now?
Periods of downturn in the markets are a good time to top up equity mutual fund investments. Financial planners believe as your income grows, the amount of investment should grow too. Do not get disturbed by the volatility in the markets. Use this opportunity of a annual salary raise, to increase your SIP amount proportionately by using a top up facility provided by the fund house.

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