SIP Investment Don’t Lose Faith

-By HEMANT RUSTAGI
Most equity fund investors are wondering which direction the stock market is heading. Given the fact that even experts are having different views on this, tackling a situation like this can be a tough task for retail investors. Needless to say, a fall of more than 57 per cent in the Sensex from the peak levels has already taken its toll on their mindset. 

It is in times like these that even the most seasoned investors can take certain illogical investment decisions that could seriously derail their long-term investment plan. While it is true that falling markets present investors with good investment opportunities, the extreme volatilities and the fear of further losses generally keep investors away from it. In fact, in some cases it even prompts them to give up their carefully planned investment strategies. 

One such example is rethinking by many investors on their investments being made through Systematic Investment Plans (SIPs). While some have discontinued their SIPs mid way through, others have decided not to renew the SIP further. This is a serious issue and requires serious thinking. 

True, even those who have been investing through SIP over the last couple of years have also suffered losses in the current downturn. However, the impact on their portfolios is much less compared to those who invested a lump sum amount at the peak levels. Besides, those who continue to invest at lower levels, they are likely to turn the volatility to their advantage and bring their average cost down over time. A disciplined approach takes away the speculative element from the investment strategy and goes a long way in ensuring success. In fact, it will not be wrong to say that patience and perseverance plays an important role in the success of an equity fund investor.  

Therefore, if you are thinking of discontinuing you SIP, you need to recall the reasons to enroll for SIP. It is a well- known fact that SIP is an ideal way to invest in equities as it not only allows you to build a capital through smaller contributions but also helps you in tackling the volatility in the market. In fact, if we were to analyse the current scenario, it provides an opportunity for you to invest at considerably lower levels and thus benefit from “Rupee Cost Averaging”. Besides, by doing so, you can be amongst the first ones to benefit from the market recovery, as and when it happens. 

However, it may be worthwhile consulting a professional advisor in getting the portfolio examined at this stage.  

Another thing that investors need to do to tackle these uncertain times is to ensure that the portfolio is not excessively diversified. While it is true that diversification helps, it becomes counter productive when one has too many funds in the port-folio. For example, if you have 15 funds in your portfolio, it does not necessarily mean that your portfolio is adequately diversified. To determine the right level of diversification, one has to consider factors like size of the portfolio, type of funds and allocation to different asset classes. Therefore, it is possible that a portfolio having 5 schemes may be adequately diversified whereas another one with 10 schemes may have very little diversification.

Remember, to have a well-balanced equity portfolio it is important to have the right level of exposure to different segments of the equity market like large cap, mid-cap and small cap. In addition, for a decent portfolio size, it is all right to have some exposure in the sector and specialty funds. Therefore, existing equity fund investors need to have a close look at their portfolio and cut down the number of funds, if required. The non-performers in the portfolio negate the good performance of others and pull down the overall performance

Most fund houses offer a family of funds thereby allowing investors to move across different funds to realign the portfolio from time to time. That’s why it is important to consider performance of other funds in the same asset class rather than just focusing on the fund that one wants to invest in. It is much more convenient to move money within the same fund house rather than redeeming from one fund house and reinvesting in some other fund house. However, if the fund house where one is invested does not have the required options or the performance of alternate fund being considered is not up to the mark, it will not be prudent to go for the convenience alone.