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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