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» » WHAT TO DO WHEN YOUR SIP RETURNS TURN NEGATIVE?



CAN SIP GIVE A NEGATIVE RETURN?

People go into panic mode when they find out that their SIP is running into losses and they completely ignore the fact that it is at this time when their SIP is actually working to give them a big reward somewhere in the far future. Mutual fund as an asset class is a long term asset like real estate or gold. The volatility  helps SIPs to have the biggest advantage of capturing the volatility and in the long run, help you get more returns.

SIP’s have the formula that can accumulate huge wealth for a person. When you are investing in the mutual fund through SIP’s, stay invested for a long term. Don’t approach this investment instrument for short term like your savings bank account in which you can put money for a short period of time take that amount out whenever you need it. Doing this with SIP will only help you to erode your capital and push the systematic investment plan into loss. In fact, when the markets go down, is the right time when the SIP’s actually have their advantage.

For example, you currently have an active SIP of Rs.10,000 SIP. This amount will fetch you more number of units when the market goes down and when the market starts to go up, which happens eventually at all times, the units that you got when the market went down gives you the advantage to make very high returns. So the bottom line is – don’t disturb your SIP’s and continue to participate even if your SIP is running into loss.

REMEDIES IF YOUR SIP IS GIVING A NEGATIVE RETURN

However, if you are not able to make up your mind as to whether to stop or continue the SIP, there are a few remedies available to you:

1.Pause the SIP: What pausing the SIP will do is give you the time to think and get the correct information about various market indices. Pausing the SIP can come in very handy when you neither want to withdraw the investment nor do you want to invest any further.
2.Stop the SIP: You can stop the SIP by simply not putting any money in the bank account with which the systematic investment plan is linked. Also, you can do this anytime you want to stop investing in the SIP. If you have invested online in a SIP, then you can simply go there and stop it or you can also contact the distributor of the SIP and tell them to stop the SIP.
3.What kind of stocks are there in your fund: You can pretty easily identify the good stocks. Check whether the stocks selected good or bad. If good stocks are selected, then the loss will not be more than 3% and there is a huge probability that if you stay invested, the fund will give you positive returns. However, if the choice of stocks in the fund is poor then you should apply your due diligence and assess whether you want to continue or stop the SIP.
4.Transfer your investment to a better scheme: If you are certain that your SIP is not working according to your expectations, what you can do is transfer your previous SIP investment to a new SIP which you perceive to be good.

CONCLUSION

Your SIP may deliver negative return due to market correction. During correction, many investors lose hope and surrender. They stop their SIPs and withdraw their money in loss but those who continue their systematic investment plans eventually make good returns. For example if you have started an SIP of Rs.10,000 per month in large cap mutual funds, say, in January of 2010, the value of the fund value of the SIP after 3 years would have been Rs.3.49 lakh against the total investment of Rs.3.66 lakh. If you had stopped the SIP and withdrawn the money, you would have incurred a loss. But if you have continued the same SIP without losing hope, the value of your SIP at the end of the fourth year could have been Rs.6.99 lakh against the total investment of Rs.4.80 lakh. To achieve financial freedom and create wealth, keep investing through SIPs in equity mutual funds for a long term.


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