Are Your SIPs Giving Negative Returns? Here’s What To Do…
Aug 05, 2019

Author: Divya Grover

(Image source: Image by StockSnap from Pixabay)

The year 2017 was one of the best years for the Indian stock markets. The S&P BSE 500 index returned 35% during the year and as a result money started flowing towards mutual funds.

But the following year proved to be one of the worst in terms of volatility when many domestic and foreign factors dragged down the market gains. Many stocks, especially in the small and mid-cap space reached their 52-week low. The markets have not recovered and there seem to be no clear signs visible of a lift-off in the short-term.

What is ailing the markets since the beginning of 2018?

How have SIP investments fared?

Table: SIP Performance of diversified equity schemes

(Returns in XIRR %)
Particulars 6 Month 1 Year 2 Year 3 Year 5 Year
Best Fund 6.95 11.20 9.98 13.39 13.37
Worst Fund -51.58 -36.49 -22.33 -14.39 -6.39
Average Diversified Equity Funds -17.03 -8.25 -4.65 1.02 5.89
S&P BSE 500 - TRI -16.97 -7.42 -1.97 3.58 7.09
Performance calculated as on August 02, 2019
(Source: ACE MF)


​The average diversified equity funds gave negative returns in the last 6-month, 1-year and 2-year period. S&P BSE 500 - TRI index too generated negative returns during the period, though the performance was slightly better than the average diversified equity funds.

However, even at the time of such volatility some schemes managed to generate positive returns and outperformed the index by a significant margin. The XIRR returns of top performing fund during the 6-month, 1-year and 2-year period were 7%, 11.2% and 10%, respectively.

The returns of average diversified equity schemes improved over 3-year and 5-year period, but here too it lagged the index. Nonetheless, the top performing fund during the 3-year and 5-year period generated XIRR returns of 13.4%, thus creating significant alpha over the index.

The returns during the 6-month, 1-year and 2-year period, is too short a duration to determine if the funds are performing well. The funds' performance may improve over time.

Even during the last one and a half year when markets fell up to 300-500 points in a day, some schemes managed to generate reasonable returns. As SIP purchases were made at lower cost during this period, it will help investors generate higher returns in the coming years.

What should investors do?

The recent volatility should not worry you if you are investing through SIP. Remember that if you have invested in SIP to achieve your financial goal, you need to stick to your plan till it is achieved. The fact is investments take time (in the market) to grow and generate meaningful returns. Stock markets are unpredictable especially in the short-term and may go through sudden ups and downs.

[Read: Markets Will Remain Volatile, But Here's How A Strategic Portfolio Comes To the Rescue]

There are many benefits of investing through the SIP mode. It instils a disciplined approach towards investment. You can grow wealth through lowering the investment cost and exponentially multiply your wealth through the power of compounding. If you have selected research-backed scheme based on your financial objective, risk profile, and investment horizon, you can sit back and relax.

However, the benefits of SIP will be only available if you invest regularly regardless of market conditions. You should not sell your investments whenever market goes through a rough period or if a fund underperforms in the short-term. If you stop SIP or miss instalments, you will miss your investment target.

[Read: Why Discontinuing Your SIPs Now May Be a Bad Idea]

Instead of panic selling when the markets decline, you should first conduct a review of your mutual fund portfolio. If your fund has generated negative returns, you should check if it is consistently underperforming by evaluating its performance relative to benchmark and peers to decide if you should continue with the investment.

On the other hand, during a bull run, do not go overboard to buy more funds without proper research and evaluation of your needs.

Volatile markets are also a good time to check if you have an appropriate asset allocation plan in place. If there is, you will not be exposed to unnecessary risk. Large-caps are currently performing better than small and mid-caps. That being said, asset allocation should not be altered based on the prevailing market conditions.

[Read: Why You Should Not Ignore Personalized Asset Allocation While Investing]

Ideally, your portfolio should be well diversified across equities of different market capitalisation and investment style, while some portion must be held in debt. Large and multi-cap funds can form a part of your core portfolio, while the satellite portfolio can include small and mid-cap funds.

Editor's Note:  If you wish to select the worthy mutual fund schemes to address your future financial needs, I recommend you to subscribe to PersonalFN's unbiased premium research service, FundSelect.


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Happy Investing!



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