SIP Investment: According to a SEBI report, 50% units were redeemed in the first year and 23% in the second year of investing in FY23. Also, many investors have stopped their SIPs in the recent past due to poor returns and mis-selling of mutual funds.
SIP Investment: A new record has been created for investing through SIP in mutual funds, but according to a SEBI report, 50% units were redeemed in the first year of investing in FY23 and 23% in the second year. Also, in the recent past, many investors have stopped their SIPs, which include big reasons like poor returns and miss-selling of mutual funds (SIP in equity schemes). MoneyFront CEO Mohit Gang and Complete Circle Consultants Head-West Zone Vikas Puri tell you the disadvantages of stopping SIPs, what to do if you get stuck in wrong funds, and how to choose long term funds.
MF redeeming investors
- More than 50% of MF units were redeemed within a year
- 73% units were redeemed within 2 years in FY23
- 71% units were redeemed within 2 years in FY22
- Few investors are continuing to invest for the long term
Mutual Fund Redemption
Holding Period Unit Redeem(FY22) Unit Redeem(FY23)
0-1 Years 56.83% 50.11%
1-2 Years 15.14% 23.04%
2-3 Years 5.03% 9.81%
3-5 Years 20.41% 13.96%
5 Years+ 2.59% 3.09%
Why is the investment train stalling?
- A great reason to invest based on past performance
- Investors are stopping investment if there is no desired return
- Investors trapped in wrong funds due to mutual fund misselling
- Investors do not want to wait much for good returns
- New investors are investing trend based instead of target based
- Investors switching from one scheme to another for higher returns
Investors are doing SIP pause
- SIP investment broke all records in May
- Over ₹14000 Crore SIP Investments Done
- Many investors also did SIP pause
- Big drop in net to gross ratio of SIP
- Gross SIP figures of ₹14,750 crore in May’23
- SIP net inflow in May’23 was only ₹5696 crore
Why is investment stalling?
- Growing number of DIY investors
- Growing number of investment platforms
- Peer pressure and social media pressure
- Increasing offers of IPO and NFO
- Switching between Direct and Regular Scheme
How to invest for the long haul?
- Build core and satellite portfolios
- Include 4-5 funds for long term
- Keep long term funds in core portfolio
- Can keep 1-2 sector/theme based funds
- Hold Sectoral Funds for 3-5 years
What to do if you get negative returns continuously?
- There can be many reasons for negative return on investment
- Negative returns have been coming continuously for some time.
Check why the negative return is coming?
- Despite the upheaval in the negative return sector
- Poor performance due to market volatility
- Continue investing if negative returns due to market
- Market performance is not good at present
- Negative returns also due to the decisions of the fund manager
- Review if the returns are not good because of the fund manager
Stop SIP on negative returns?
- Don’t stop SIP just because of negative returns
- First of all see why the fund performed poorly?
- Take a decision after knowing the reason for the negative return
- There is a flaw in the fund’s strategy
- In such a situation, it is correct to compare the fund with other funds.
Short term and negative returns
- Invested for 5 years and less
- Getting negative return on investment
- Never take equity funds for short term
- Returns from SIP investments are not visible in 1-2 years
- SIP for 5 years will know the performance
- SIP if done for less than 5 years
- Choose an investment with less risk than equity
Long term and negative returns
- Long term fluctuations get adjusted
- There will be ups and downs in mutual fund investment
- Market downturn is a good investment opportunity
- It is right to increase investment at the time of decline
- Now negative returns will improve in future
- Fund performance is not good over a long period of time
- In such a situation, stopping SIP can be considered.
Do not stop SIP
- Stopping SIP will deposit less amount till the target
- Disadvantages of stopping SIP in a volatile market
- Profit from buying more in a falling market
- Can take advantage of rupee cost averaging
- Benefits of compounding with SIP in the long run
