A lot of people have approached me recently, clearly worried about the fall in their portfolio value of their SIP investments. Many of them have also asked as to whether it will be a good idea to stop the SIP till the markets stabilized. I thought it will be a good idea to do a post covering some of the aspects I have touched on earlier. More importantly, I wanted to give an accurate dimension to the problem by looking at how my SIP s have got affected by the current downturn.
To begin with, it will be a good idea for all readers to go through the following posts which have appeared previously in this blog. As the posts are self explanatory, I am not providing any additional notes out here again.
- The genesis and evolution of SIP in India
- SIP is not a panacea
- My experiences with SIP
- SIP – A modified version
- My current SIP in Mutual Funds
The last post was written on July 31st, where I had given the XIRR of the SIP for all 7 funds that I was investing in. Let us now see how some of these funds have performed during the current market turmoil:-
- ICICI Pru Value Discovery fund XIRR has slipped from 41% to 29% in one month.
- ICICI Focused Bluechip Equity fund XIRR has slipped from 21% to 11.58% in one month.
- HDFC Mid cap opportunities fund XIRR has slipped from 40% to 28% in one month.
If you do a similar exercise for your SIP, you will find that the impact has been more or less the same assuming you started these SIP in October 2013 like me. In case, you had started in mid 2014, it is quite likely that the XIRR is in the negative range for you now. Does this mean, you should stop investing in MF and put your money in fixed income instruments? That will be a completely wrong thing to do.
Your SIP XIRR is low or negative because you bought the MF units at a higher NAV and that NAV has fallen today due to the current market conditions. As long as you are not planning to sell these units the negative XIRR is really no big deal. It fell because of the markets and it will also rise when the markets recover. The current lower values of NAV are actually an opportunity to increase your holdings as you can buy more units for the same SIP amount. As long as the markets are going down and you have a long term horizon, there is no logical reason to even think of stopping the SIP.
My own holdings in MF have actually fallen by more than 13% over the last 3 weeks. However, even in my current state of Financial independence where I am not engaged in a regular job, this does not worry me at all. My plan is that I will not need this money for the next 10 years or so and therefore, the value today has little real impact on my financial situation. I do have a goal of my daughter’s MBA education next year and may have wanted to look at redeeming some part of my stock or MF portfolio to meet that need. However, if market conditions continue to be the same by June 2016, I will simply mobilize this amount from my debt portfolio.
In summary – do not panic, continue your SIP, increase MF allocation is possible, arrange alternative sources of funds for your goals, reduce discretionary expenditure wherever possible and you will come out of this situation pretty well.
I am happy to see many people have got started out here. Also, become a part of my Facebook group Market Musings where a lot more is discussed on the general market situation and also individual stocks.
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