When the market correct or undergo with bear phase or sideways phase and when SIP (Equity) returns are negative to a flat, lot many investors have many concerns/doubts/queries about their SIP like:
· Should I continue with my monthly SIP?
· Is it wise to stop & redeem all SIP to curtail further loss?
· I have been investing via SIP for the last five years with no return, for what duration should I continue my SIP further?
· Considering the current market scenario, would it be better to decrease the SIP amount for the time being?
· Should I change the SIP scheme that has not done well? How to deal with loss-making SIPs?
· Can I take SIP pause for the next three / six months till the market improves?
· I need money, should I withdraw from my SIP account?
· I am scarred by negative returns & huge accumulated losses. What should I do? How I will create wealth?
One should understand that equity markets usually undergo several ups & downs, and in some of these times, they are bound to see negative returns. SIPs in equity funds are generally done for long-term goals such as retirement, kid’s education & marriage having a time horizon of at least 10 years. Therefore, by design, SIPs are capable of withstanding all kinds of corrections in the market, even sharp corrections such as the one we faced recently in Mar’2020. These corrections will only help investors to average out purchase costs. Hence, to make the best of the situation, one should continue with SIP and if possible increase your SIP amount.
In the past 40 years, there have been seven major correction/bear market periods with a fall of the market around 40% to 60% from the top. Time taken from peak to trough is anywhere between 4 months to 2 years and similarly, time taken for recovery ranges from 6 months to 2.5 years.
· Year 1992 - Sensex down by 54% in a year and up by 127% in the next 1.5 yrs.
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Year
1996 - 40% down in 4 years and 115% in the next year
·
Year
2000 - 56% down in my 1.5 years and 138% up next 2.5 years.
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Year
2008 - 61% down in 1 year and 157% up in the next 1.5 years
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Year
2010 - 28% down in 1 year and 96% up in the next 3 years
·
Year
2015 - 22.3% down in 1 Year and 25% up in the next 7 months
·
Year
2020 - 40% down in Mar’20, then recovered and hit an all-time high in Nov’20
One should never make investment decisions on the prevailing market conditions. A SIP allows you to buy mutual funds units regularly. The basic idea of investing through SIPs is to invest in a disciplined way without getting influenced by the highs & lows in the market. It is strongly suggested to continue your SIPs during the bear phase, help you average at lower levels. Please do know that buying cheap is the essence of getting higher returns and therefore keep investing in the SIP way. Use every dip to increase equity allocation gradually as per your risk profile. Don't try to predict the bottom, which will come & go. Equity investments are all about conviction, discipline & patience. It always payout in long term but one has to undergo short-term pain. Focus to maintain your asset allocation.
Conclusion:
- The best way to address this issue is not to constantly watch the portfolio until the market settled down.
- Never put your emergency fund in equity SIP
- Stick to your asset allocation and remember that in the long run, it's only asset allocation strategy that defines the returns you generate. Focus on your asset allocation & future goals only.
- Stopping SIP would be a grave mistake – don’t do that. It is really a very bad time for stopping SIPs during the correction phase.
- Equity is a unique asset class where the majority of investors are comfortable buying at High & selling at Low, thus never able to create wealth. Whereas SIP is a long term commitment like insurance policies.
- Remember investments made during the toughest time yielded the best return over a period of time and investments made during good time yielded not so good return.
Disclaimer: Mutual Funds investment are subject to Market Risk
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