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How to manage my SIPs if they are not doing well and market is also very high

I have one question: Lets say I started investing in 1 Mutual with Rs. 5000 month keeping a time horizon of 15 years. But after say 5 years, (my investment becomes 3 Lakh after 5 years), I find that the fund is not performing well, e.g. as compare to its peers, or change in Market trends (other category fund performing well), etc. Now as a SIP investor who want to remain invested for 15 years what possible approaches, I can take? I am asking this as fund value invested (3 lakh) is pretty high now, so re-investing via SIP will not make sense, and on the other hand if market is high than Lumpsum also will not make sense. Please suggest?

Aug 16, 2016 by Mohit, Noida  |   Mutual Fund

Thanks for writing to us. While reading through your query, we found that we also need to address some basic things about mutual fund and SIP investing. Therefore, read each and every point which not only will answer your query, it will also help you clear some doubts –

1. First, SIP is a an investment journey which helps you reach your financial goals (milestones). Like any journey, the SIP investment journey could also be volatile, rough, very rough and smooth as well.

2. Since the journey could be volatile, that is why we do invest through SIP to take benefit of rupee cost averaging while getting into a disciplined habit.

3. SIP is a long term journey and therefore you should remain invested throughout the investing period in order to achieve your financial goal. But the other benefit of remaining invested for the long term is power of compounding. The higher the number of years the more is the compounding.

But does it mean that one should invest for 15 years and close his eyes and wait for the gains to come after 15 years? The answer is No. Whether it is a SIP or lumpsum investment, one should always review the portfolio atleast once every year. That answers first part of your query. So the key is “Invest with a long term view but keep reviewing annually” – This will help you know which fund is performing how and accordingly, if required, change the fund without terminating the SIP journey.

If you continue to do this you will come to know what to do after 5 years (as mentioned in your query) or for that matter at any time during the investment cycle.

4. The possible approaches for a long term SIP investor are many and will depend upon his risk profile, future goals, the investment tenure and most importantly his behaviour to his investments . Some of the possible solutions could be these –

  • As discussed above, invest for the long term but review the portfolio every year. Here fund selection should be based on investors risk taking ability.

  • Suppose, you have invested for 15 years with a particular goal in mind and you are nearing that goal, say after 12 years, you might as well book a substantial amount of profit and transfer to safer category of funds.

  • Similarly, if the goal of 15 years is achieved in 12 years, then you might as well stop the SIP and transfer the final corpus to a debt fund or liquid fund and use the same when you require it for meeting goal expenses.

  • Investor should not try to time the market. For example – We have analysed and found that if you remain invested through different market cycles, chances of winning is very - very high. To do this we had to analyse the Sensex little over 10 years - from 12/5/2006 to 12/8/2016. Let us now see, what the markets went though?

  • 12/05/2006 – Sensex at new high of 12,285

  • 11/01/2008 – Sensex reached further high of 20,827

  • 03/03/2009 – Sensex went down drastically to three year low at 847

  • 06/10/2010 – Sensex recovered within 20 months and reaches at 20543, nearer to the last high of 20,827

  • 26/12/2011 – Sensex again went down to 15970 within 1 year

  • 29/01/2015 – Sensex reaches all time high of 29,681

  • 17/02/2016 – Sensex again touches recent low of 23381

  • 12/08/2016 – Sensex reaches a new recent high of 28,152

From the above Sensex levels, you can clearly see and feel that any investor will panic with such rise and fall of the market and may take any decision which could hurt his long term investments. Now, let us see how the investors would have done had he remain invested with his SIPs during this period ? We have taken the SIP start date as 12/05/2006 and continuing the monthly SIP of Rs. 5,000 for the entire above period.

Top large cap funds would have given 12.42 to 15.72 annualised returns. The SIP amount of Rs. 620,000 is now varying between 12.00 Lakhs to 14.39 Lakhs

Top diversified equity funds would have given 13.88 to 16.26 annualised returns. The SIP amount of Rs. 620,000 is now varying between 13.00 Lakhs to 14.82 Lakhs

Top Mid and small cap funds would have given 14.54 to 19.73 annualised returns. The SIP amount of Rs. 620,000 is now varying between 15.00 Lakhs to 19.74 Lakhs

Hope the above analysis answers rest of your query. In case you have further doubts do write to us again.

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