What SIP Investors Should (And Shouldn't!) Do Now
Volatile markets have a way of revealing the true temperament of mercurial investors. And it's a fact that many investors who happily embarked upon the Mutual Fund SIP (Systematic Investment Plan) route a year or so back, are now sitting on flat to negative returns - and they're starting to worry. With indices turning bearish since the day of the union budget, many SIP investors who were sitting on reasonable profits until then, are now slowly but surely slipping into the red. If you're one of them, here are four things for you to do now.
Re-profile your Risk Tolerance
The truth is, risk profiling quizzes based on hypothetical situational questions are only effective to a degree. If you're fretting at the sight of your purportedly long-term SIP's slipping mildly into the red, you may not be so tolerant of risk as you initially thought. Making investments outside of your risk profile bracket can come back to bite you later, so this is a good time to really introspect and figure out your real appetite for risk. 2018 is likely to be a testing year for equity investors - if swings of 15%-20% below and above your corpus value disconcert you, you may want to reconsider your investing approach.
If you've accumulated a sizeable corpus, its time for asset allocation
Fact is - a 10% drop on Rs. 1 Lakh is Rs. 10,000 - but a 10% drop on a corpus of Rs. 2 Crores is a more significant 20 Lakhs! If you've accumulated a sizeable corpus through your SIP's over the years, it may well be time to rebalance your portfolio. In fact, the next couple of years could likely be 'catch up' years for equity markets during which we'll witness volatility and time corrections, meaning that the markets are unlikely to move up much on a point to point basis.
Replacing 25% to 50% of your accumulated corpus (depending upon your risk profile) with credit risk funds and income funds wouldn't be a bad idea at this point in time.
Keep your SIP's running
As a thumb rule, SIP's work best when you dispassionately keep them running despite the ups and downs of the markets. Through a mechanism called rupee-cost averaging, SIP's neatly smoothen out the average purchase price of your units, thereby absorbing some of the risks associated with equity investing and reducing the overall standard deviation of your investment portfolio. It's critical that you don't try and time your SIP investments by stopping and starting them; much better to let the natural flow of the markets run their course instead.
Don't panic, but do temper your expectations
There's really no need to panic. Another 2008 is not on the cards. We're not going to witness a meltdown. Nervousness will only result in rash decisions that will stand to hamper your wealth creation in the long run. Coolly rebalance your lumpsum if required, and keep your SIP's running. However, remember this - you're not going to see blockbuster, 20%+ returns from your SIP's in the next couple of years. No two market cycles are alike, and it's vital to temper your expectations in line with what rational indicators are telling us. In the next two years, a reasonable CAGR expectation from your SIP portfolio should be anything that's early-double digits.
