How to Deal with Negative Returns of Mutual Fund SIPs?

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No matter what the mode is, investors tend to get stressed when they come across the market fluctuations. Equity investments are comparatively more prone to such changes compared to debt and money market instruments. To know what caused negative returns in SIP investment and how to handle such changes, continue reading this blog.

What Leads to Negative Returns in SIPs?

There are a number of reasons that are responsible for negative returns in SIP investment but the two main reasons that cover all are the market conditions and non-performance of mutual funds. Shared below are the points that have affected the market recently and led to its downfall which further bring changes in the mutual funds.

1. Increase in the crude oil prices and withdrawal by financial institutional investors have led to the downfall in the value of Indian currency burdening the economy.
2. In addition to the increase in the ten years’ bond value in India, the default of crores by IL&FS along with DSP MF selling non-convertible debentures of DHFL has affected the bond market.
3. The correction phase going on in the small and mid cap space and the weakened Asian market are yet other reasons that have affected the mutual fund market.

Apart from these, the coming election period is also likely to affect the returns in SIP plans as it always does. This happens due to the feeling of uncertainty among people till the results are out. However, once they are over, with time the market generally does well.

How to Manage Loss During the Market Downfall?

First and foremost thing that investors can do during the market downfall is to remain free from panic and follow the points mentioned below.

1. Such market conditions should be observed as an opportunity rather than a negative situation.
2. All an investor needs to do during this phase is to remain invested as more units are purchased during this time because the NAV gets low. This happens as a result of its feature termed as rupee cost averaging in which the units are purchased according to the current NAV and at the end, averaging them all leads to generation of better returns.
3. Experts at MySIPonline believe that investors should make additional purchase during this time as the same will help in enhancing the returns even more with the passing time.

When Is the Right Time to Invest in SIP?

One of the features of mutual fund is that there is no need to time the market if you are investing in it for a long-term and so is one of the features of SIP investment in India. Whether the market is low or high, investing in it for long-term will shield your investment against the market volatility that occurs for a short-term. Therefore, you may invest in SIP plans whenever you want to without fearing anything. All you need to take care of is the selection of tenure for which you want to invest.

Points to Consider While Selecting SIP Plan

There are a number of points that one should consider while selecting the right investment plan which are as follows.

1. Fund House - It is important to know about the fund house that is offering the particular scheme you are interested to invest in. Find out about its functioning, values, strengths, etc. to have a fair idea if it is worth relying on.
2. Fund Manager - All the investment-related decisions are taken by the fund manager which means how the scheme will perform depends largely on him/her. There can be more than one fund manager for the schemes who might be handling different instruments. You should know how educated, experienced and capable these fund managers are and the investment strategies that they are following.
3. Risk Factor - Make sure that you understand the risk you are capable of taking and the risk that will come with investing in a particular scheme. If your risk factor matches with your profile, then the next factor will be how the risk of the scheme is being managed. A scheme with robust risk management system is a key to proper functioning of the scheme.
4. Past Performance - How the scheme has performed in the past is an indicator of how it can perform under different market conditions. Studying the average annual returns and the rate of return since inception of a particular scheme will help you select the right one that you have been looking for.
5. Portfolio Management - Proper asset allocation can help an investor earn well. While a well structured and diversified investment can lead to risk minimization, at the same time, selecting the quality stocks can increase the scope of better returns.

The Final Note

Hope you have understood well what leads to downfall in the SIP returns and how you can deal with the same. The key is simple, don’t panic and remain invested for a long-term to enjoy not only the rupee cost averaging benefit but also high returns with the power of compounding. The market is always prone to changes and you never know when it might surprise you in a pleasant way. If there is anything that you wish to discuss, you can connect with our financial experts or post a query related to regular funds here.

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