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Ways in which investors can rejig their mutual fund strategy amid COVID-19 fall

Rising number of SIP accounts show a silver lining amid the current market gloom and stand as a testament that there will be light at the end of this tunnel.

June 14, 2020 / 09:13 AM IST

Rahul Jain

With markets slowly gaining momentum on the back of gradual resumption of economic activities, fiscal stimulus from the Centre and rising FPI flows following the novel coronavirus pandemic-induced slump, investors are looking to make the most of this opportunity to recover their recent losses.

It is an opportune time for mutual fund investors to reassess their current portfolios and rejig their strategies.

They stand to gain from ongoing market developments and build a sizeable corpus that can help them achieve their financial life goals.

At the core of this strategy lies ramping up of SIP investments which can be done in two ways. Let me explain in detail:

Close

Top-up your existing SIP:

A SIP top-up is a mechanism where you increase your existing SIP installment by a fixed amount at pre-determined intervals. Through this, you can invest higher amounts in your chosen fund, during the tenure of the SIP.

At a time when markets are yet to fully recover and most investments still in the red, many may question the rationale behind this approach.

Note that the path to recovery is long-drawn and mutual fund NAVs, are yet to pick up. A SIP top-up now will fetch more units at a lesser price, on the lines of rupee cost averaging.

To put it otherwise, you will be able to accumulate more units at a lower price. When the markets rebound, these extra units can make a big difference in your end corpus as they will be redeemed at the then prevailing NAV and not at purchase valuation.

Also, a periodic increase in your SIP amount can help you accumulate a bigger corpus, in the long run.

For example, a regular SIP of Rs 5,000 in a fund offering annualised return of 12 percent for 15 years, can help you accumulate a corpus of close to Rs 25 lakhs.

However, topping up the SIP amount annually by an additional 10 percent can help you garner a corpus of above Rs 37 lakhs.

Stagger your deployment

Staggering the deployment of your investment capital is another SIP strategy that can help enhance your wealth in the long run.

Instead of being tied to specific SIP dates and a pre-defined amount, you deploy lump-sum amounts of capital in a staggered manner, over and above your ongoing SIPs.

For instance, if you have Rs 1 lakh as an investable surplus, you can deploy SIPs of either Rs 10,000 or Rs 25,000, as you desire.

You can try different ticket size combinations that fit in with your requirements and make your investments accordingly.

In the event of a quick market rally, a SIP top-up may not capture the downsize effectively and you may lose the opportunity of buying more units at a lesser price by the time your SIP installments hit and NAVs are allocated.

On the contrary, staggered investments with larger capital can help you better utilise money in-hand and make meaningful gains in the long run.

Also, it can help bridge any shortfall in the target corpus and ensure you don’t divert funds from other financial goals or dip into your savings.

The final word

The MF industry has been under intense pressure and scrutiny since the IL&FS blowout and the recent closure of six debt schemes, have done little to boost investor confidence.

However, the rising number of SIP accounts show a silver lining amid the current market gloom and stand as a testament that there will be light at the end of this tunnel. Happy investing!

(The author is Head Edelweiss Wealth Management)

Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
Moneycontrol Contributor
first published: Jun 14, 2020 09:13 am

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