With the Sensex and Nifty touching new highs over the last few days, your equity portfolio may not reflect the same. There is a high probability that your Systematic Investment Plans (SIPs) in equity mutual funds over the past 8-12 months may show negative returns. Worried? Don't be, as this could be the best thing that has happened to your portfolio if you are investing for the long-term.
The last few quarters have seen a deep correction in the mid- and small-cap segment, and overall stock market indices have been achieving new highs. This has resulted in investments (including SIP’s) showing low or negative returns, especially if the SIP’s were initiated in the last 3-4 quarters.
The correction in 2018 is mainly led by mid- and small-caps -- the Nifty Mid and Small Cap indices have fallen more than 11% and 19% from their peaks, respectively. Broader indices (such as the Nifty 50, have on the other hand, been in more of a "consolidation" mode, generating flat to positive returns on a point-to-point basis.
As investors, we all hate to see our portfolios give negative returns. While investing is easy these days, creating wealth is extremely tough as we go through such market cycles. There is a saying that “the stock market always rewards patient investors” and it’s at times like this our patience is tested.
The silver lining here is that such market cycles help you create wealth for yourself. The investments you are making (in equity mutual funds) and the way of investing (SIP’s/STP’s) are best suited for you to take advantage of market volatility, especially taking into consideration the time frame of your financial goals (the further away your goal in number of years the higher allocation you would have towards aggressive small and mid-cap funds).
We firmly believe that this is not the first or the last time you will be seeing high market volatility and as financial advisors, we are equally confident that being patient and continuing your investments will ensure you meet your financial goals.
Remember, only when the markets fall is when the opportunity is created for higher returns in the future. With SIP’s you are ideally placed to take advantage of this situation as every time the market falls your monthly investments buy more units in your mutual fund. This will ensure larger returns when the market returns to growth mode.
Consider this real life example of an investor who started a SIP of Rs 10,000 per month in Franklin India Prima Fund in January 2010 (fund value today: 21.76 lakhs versus a total invested principal of Rs 9.6 lakhs). The following is only one of several examples of how depressed equity markets during an accumulation phase have paid off richly by creating wealth over six to eight-year time frames.
Market movements are not in our control, however, by making sure your investments are in the right mutual funds as per your risk profile, and through SIP modes, not only reduce risk but ensure that you meet your important financial goals by averaging out (by buying more units when the markets fall).
Although it doesn’t sound good, the best thing to happen to your investments in the initial (accrual) stage is low market returns because that will make a significant difference to your portfolio in later stages when you are close to achieving your goals.
This is where focusing on long-term investment goals provide strength and patience to not get carried away by short-term market movements. Greed and fear are your biggest enemies when it comes to meeting long-term goals. This is not the time to let fear ruin your investment decisions.
The key to success would be to get a good financial advisor who understands your finances and makes investments based on your investment goals.
(The writer is CEO – FinEdge)