<div><em>When the stock market fall considerably, it becomes all the more imminent to invest more. Not doing so is damaging your portfolio returns. <strong>Sunil Dhawan</strong> explains how and why</em></div><div> </div><div>As per few reports, there has been increase in the number of SIP’s in the last 12 months compared to earlier period. This is absolutely a good sign for investors and markets too. <br> </div><div>Retail investors especially those who were recent entrants into the markets felt a big jolt few days back when the markets crashed 1600 points bringing down the NAV’s of their market-linked investments. </div><div> </div><div>The one big mistake that retail investors need to avoid is to stop their SIP. On the contrary, it is imperative to not just stay invested but also put in more funds. For all those who opt to sit out without putting in fresh money the damage to their portfolio could be huge. </div><div> </div><div>Assuming that the market goes up from here and deliver a return of 15 per cent by end of Aug. next year. For someone who doesn’t put in additional investment, the returns in all likelihood would still be a negative return. </div><div> </div><div>Let’s say, you had a fund value of Rs 1-lakh as on August 2014 which gets reduced by 15 percent by August 2015. </div><div> </div><div><span style="color:#ff0000;"><strong>Scenario I: You do not invest further<span class="Apple-tab-span" style="white-space:pre"> </span></strong></span></div><div>Market moves up by 15 per cent till August 2016 and your fund grows to Rs 97,750 yielding a negative return of 1.23 per cent over the 2-year period for your portfolio. (August 2014-August 2016)</div><div> </div><div><span style="color:#ff0000;"><strong>Scenario II: You invest further.</strong></span></div><div>Additional investment of Rs15, 000 is made into your portfolio.</div><div>Market moves up by 15 per cent till August 2016 and your fund grows to Rs 1, 15,000 yielding a break-even return over the 2-year period for your portfolio. (August 2014-August 2016)</div><div> </div><div>Any amount above Rs 15,000 (by the amount that has got eroded) is all the more better to increase your overall returns. </div><div> </div><div>The calculations are based on the principle of cost-averaging The assumption of achieving 15 percent return over the next year may not hold true, however, pumping in more money to generate a healthy CAGR is all the more essential and is tried to be portrayed. </div><div> </div><div>Allocating more funds into the asset class whose returns have fallen is also the part of asset allocation strategy. The approach suggests to buy more of equities when its allocation falls is precisely for this reason. </div><div> </div><div><strong>MF and Ulip holders:</strong> If you are mutual funds investor, investing more at these levels bring the cost of your funds down as the NAV’s and the stock prices are at lower levels. Keep your investments staggered and keep buying at different levels. However, it is equally important to keep reviewing one’s portfolio to weed out the laggards and add the performers into the portfolio especially after a big fall in market.</div><div> </div><div>For policyholder of Ulips, the requirement is passive. The renewal premium does the trick for them. The structure of an insurance product like Ulip is such that it asks for a renewal premium and hence helps in averaging your cost. Renewals help you hold more units at the lesser NAV thus bringing down the overall cost of investments. Whenever markets start delivering returns, the benefit to a low-cost holder of units will be more than someone holding high cost units. One may also use the top-up facility to add funds in the portfolio.</div><div> </div><div><strong>End note:</strong> It is not the timing rather than the time one spends in the market that will determine the returns. If markets go down from current levels, one needs to keep allocating as per asset allocation approach. After all, the markets are currently at a level on which it was a year back. BSE 100’s 1-year return is a low 1.64 percent. Remember, investment in equities are only meant for goals that are of long term i.e. at least 5 years away. So, now it’s clear as to what an investor should do every time the portfolio returns falls. </div><div> </div>
