The way market is behaving since last six months, most of us with running SIP’s, have this question, what to do next? Continue, Stop, Reduce or Increase SIP?
When we start an equity SIP, our calculation is based on the long term goal allocation & not the short term impact. Logic of SIP is based on two facts:
- Monthly Savings: where based on cash-flow, savings are parked in the allocated equity fund, else same will remain in the bank savings account (earning just 4/6%) till the time one decides, or best, will get consumed in some lifestyle purchase.
- Cost Averaging: idea is simple, no one can predict the market, therefore the best time-tested philosophy, is to make the best out of the market, i.e. to follow a disciplined approach on monthly investment, irrespective of the market movement (ups & downs of the market), and average out the cost, by buying at all levels.
In case your Goal is nearing, within 12 to 18 months, one should consider reducing or shifting major allocation towards conservative assets. Its recommended to speak & consult your advisor, before stepping or taking the final decision.
Reduce or Increase SIP allocation; one should desist making impulsive decision based on market swings and act like a cowboy. Again, its recommended to speak & consult your advisor on your rationale.
But if your cash-flow permits, keep on increasing your SIP, not because of the market swings, but an exercise, which one should consider every year, towards increasing SIP. Another way to increase, is to link the increase with the increase in income levels.
SIP has created more wealth with people across the world, than the Timing-the-market Cowboy’s, who would have made mediocre returns. Only problem, we don’t analyse, but get to hear more from the cowboys.
STP stands for “Systematic Transfer Plan”, which means, one doesn’t want to invest in one GO, but in Parts, over a Period of time. For instance, you have 10 lacs in hand and seeking investment avenues for the entire 10 lacs. Easiest way is to shortlist a fund & invest fully (i.e. entire 10 lacs). But in the current market scenario, where market is swinging every second month (since last one year);is it a wise decision to invest fully?
STP comes as a rescue, where one can make this volatility work for your own benefit. First & foremost, let’s understand, one cannot ever time the market, therefore no point acting like a cowboy, or getting ideas based on celebrity talk-shows/ articles.
Since no one can time the market and the volatility, therefore the first rule is to park the entire funds in some conservative debt fund, where one can earn the base level returns. Next rule, based on your understanding, or with guidance with your advisor (highly recommended), one should now plan monthly transfers, from the debt fund to the preferred funds. Idea is to benefit from all levels of markets, i.e. market ups & downs, and average-out the cost of purchase.
STP is similar to SIP (Systematic Investment Plan), only difference is the source of funds at the time of investment; where SIP comes out of Income (or savings), and STP comes out from Lumpsum invested, usually in a conservative debt fund.
If I’ll be you, I’ll not panic… Why?
If you look at the chart below, since June 28th, when SEXSEX was at 35,037 level, it climbed to a peak of 38,896 level by Aug 28th, i.e. in just two months a gain of 3800+ points or 11% UP. Did we question that point of time…why so suddenly the market went UP?
Again, if you look at chart below, from beginning of the year, i.e. 1st Jan, SENSEX was at 33,812 level, and from there it went to a peak of 36,283 level by 29th Jan, a gain of 2400+ points or 7% UP. And a correction or a reaction to the budget (key trigger), for the next 2 months slide.
Above all, key question is, when did I enter the market? The usual answer will be, not in this phase (last three months), i.e. most likely your investments will be spread over multiple years or months (if started recently). Your returns which was looking fabulous last month (when market was at its peak), will come down, but not down to levels, where one should panic.
Fundamentals aside, market sentiment is very weak, with global factors dominating today, over & above the IL&FS story. Crude relentless surge, dollar gaining, and looming trade wars/ sanctions are all driving the market/ sentiment mad.
If you are invested for a long term, i.e. at least 3 to 5 years+, JUST STAY PUT. But keep talking to your advisor, who acts as a coach in this troubled time, to logically explain you the market volatility & WHAT NEXT.
Quote of the Day: “we defend many of these nations (OPEC) for nothing, and they take advantage of us by giving us high oil prices. Not good. We want them to stop raising prices, we want them to start lowering prices,” President Trump.
I’m investing in the best performing mutual fund schemes, but after I invest, the fund’s performance starts degrading. What do I do?
This is the story with each one of us. When NAV is low, FEAR factor surrounds us (what to do now?) & when NAV is high, we have GREED (to hold on or to buy more?).
It’s like planting a tree, once the seed is planted, we virtually see it every day, to check on the growth. First few days/ weeks are very exciting, when we see a small bud, leaves sprouting; but after few weeks or a month, it becomes frustrating, as growth is small & we want to see a big tree right away. Whereas it will take years, before the tree is fully formed, will bear flowers & fruits, and above all it must withstand harsh weather& other factors.
Your returns or growth in a Mutual Fund, is an outcome of multiple years of holding period. And in this period, market will behave in both directions, i.e. market may come down resulting in lower NAV or go-up in one swing, with a higher NAV.
Prudent advice; is to just ignore the market swings & stay-put, and only bother about the holding period. No one can control markets, but one can control to STAY PUT 😉.
You are not investing to time the market, but investing for an objective, which has a duration (time-line); for instance, your kid’s education, which is 10 years from now. Therefore, just STAY PUT.
Equity market reacted to two key events yesterday, with Sensex going down 1314 points intra-day or 3.5%.
- There was a significant sell-off – starting with Yes Bank (down 29.5%) and then spreading to,
- Dewan Housing (down 45%) and other NBFCs, banks and also the broader markets.
While Yes Bank corrected because of RBI’s denial of tenure extension to the CEO Mr. Rana Kapoor, the fall in shares of DHFL was driven by sale of the company’s debt by a mutual fund at higher yields.
What comes out is the fact that, in the broader markets, this was a knee jerk reaction and prices of most stocks should stabilize once the panic subsides.However, the sharp volatility witnessed, highlights the underlying fragility of the market.
It’s true that the selling was largely sentiment driven with no fundamental negatives in most stocks. However, the price action with almost no buying interest characterizes a market where risk appetite is low.