New SIP investors feel the pain as equity fund returns disappoint!

SIP by SIP: That’s how the average Indian had a taste of equities in the past couple of years. But the steady road to riches, which involved monthly mutual fund purchases of a fixed amount, suddenly seems a bit rocky to many of them, who are beginning to look at mark to market losses as many stocks head south.

A report by NJ Wealth showed that SIP investors are losing in 78 of 137 equity mutual fund schemes, with the average loss at 1.5 per cent for two years. The loss is higher in mid/small-cap funds at 6 per cent, although in large-cap funds, they are gaining 1.5 per cent. Over longer tenures like three and five years, they are still in the black, by 5.21 per cent and 10.28 per cent, respectively.

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While most investors are not disturbed by the near-term volatility, distributors said that many new investors who came in for the first time seeing the returns of 2016 and 2017 are now feeling worried about these investments.

Investors have been pouring money into equity mutual funds through the SIP route. In December 2018, inflows through SIPs touched an all-time high of Rs 8,022 crore, a four-fold jump from Rs 1,916 crore in March 2015.

“Investors should continue with their SIPs and not worry as downturns help accumulate a higher number of units. This will help create wealth when the market cycle turns upward,” said Swarup Mohanty, CEO, Mirae Asset Mutual Fund.

Distributors point out that equity is a volatile asset class and would not give linear returns like a fixed deposit. They point that most SIPs are done by investors for the long term to meet their long-term goals such as children’s education, buying a house, or planning for their retirement.

“Equity returns are not consistent year on year. If you have done an SIP to meet a goal with a timeframe of five-seven years, you should not worry about low returns over a two-year period,” said Radhika Gupta, CEO, Edelweiss Mutual Fund.

<The above article is an excerpt from Economic Times Newspaper>

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