Coronavirus (Coronavirus -Covid19) has virtually shut
down business activities worldwide. Due to this, there has been a huge
decline in the stock markets. The Sensex fell by 40 per cent in
March. This has also shown its effect on the investment in Mutual Funds
Return's equity scheme. Investors are beginning to worry about their
portfolio. But if we look at the performance of mutual fund schemes
compared to the market, during the last 5 years, most schemes have given
underperforming or negative returns. However, experts say that there is no
need to panic. Whenever there is such a big decline in the stock
market, then and again investors have received more than 100 per cent
returns in the next three.
Mutual funds continue to perform poorly for 5 years
According to the S&P Indies Versus Active (SPIVA)
report, most funds have underperformed over a period of 5 years till December
2019. The thing to note here is that most asset management companies
(AMCs) entice investors by saying that investors should invest in the medium to
long term to avoid short-term fluctuations.
A study by SPIVA shows that 82.29% of large-cap funds, 78.38% of equity-linked
savings scheme funds (ELSS) and 40.9% of mid-small cap equity funds have
underperformed their index in 5 years among equity funds.
If investors think that they will get better returns after investing for more
than 5 years, then it can also be wrong to believe that.
Akash Jain, Associate Director of Global Research at
S&P Dow Jones says that most of the large-cap equity funds actively managed
have underperformed. As of December 2019, 64.8% of large-cap funds have
performed poorly in comparison to the BSE 100 over a 10-year period.
The situation is not good even in the short term. By December 2019, the
BSE 100 rose by 10.92 per cent over a period of 1 year, while 40 per cent of
large cap equity funds gave lower returns than the benchmark during this
period. Mid and small category funds have performed better. Their
returns have been better than the BSE 400 mid-small cap index, irrespective of
the investment period.
What do we do now?
Firoz Aziz, deputy CEO of Anandrathi Wealth Management, says that after
looking at historical figures, after such a huge decline, mutual funds get up
to 100 per cent returns for the next three years. That is why this decline
can be exploited. In such a situation, it is not fair to advise SIP
investors that they should top up SIP or continue as before. The best way
is to talk to your mutual fund house for at least 3 months and make it
'Pause'. It seems that after 3 months the impact of Corona's crisis will
lessen. After that release it again as before.
Asif Iqbal, head of research at Escort Security, says that you should not panic
at all, but to keep your investment safe. Long term means 10 years or
more, but today long term has become one week. In personal finance, the
long term means longer period is still 10 years or more.
It is beneficial to invest long-term in the equity market and related mutual
fund schemes. Investing in diversified equity funds through SIP is for
your long-term goals. Goals such as retirement, higher education of your child
are far away. You will need this money after many years. In such a
situation, if you are getting negative returns from SIP then what is the need
to panic? Be happy that you are investing at a lower level and buying more
units.
What is SIP?
SIP stands for (Systematic Investment Plan). Many investors also call it
SIP. It allows the investor to invest a certain amount regularly in a
scheme of mutual funds. In this way, it is an easy way to invest in mutual
funds. In this, you buy units of mutual funds every month by withdrawing
small amount from your earnings. Investments made regularly for a few
years later become big investments.
You can invest in a scheme of mutual funds for one year, two years, five
years or longer through SIP. With the first installment of the investment,
the mutual fund company allocates the units of the scheme to you. The
number of units you get depends on the Net Asset Value (NAV) of the unit.
Easy to understand
Suppose in the first month you have invested 1000 rupees
through SIP. If the price of one unit of the scheme in which you have
invested is Rs 20, then the mutual fund company will allot you a little less
than 50 units. You will not get 50 units because the asset management
company charges you a little money for managing the fund, which is called the
expense ratio. As you go on investing, your number of units keeps
increasing. Hemant Beniwal, director of Arc Primary Advisors, says that as
soon as the money is put in the SIP, that money goes to invest. So your
money stays invested for a long time.
Benefit on decline
Investing in a mutual fund scheme through SIP reduces the
average purchase price of the units. This is called cost averaging
method. Actually stock market fluctuations continue. You do not know
when the market will go up and down. In a SIP, the mutual fund company
buys shares or other securities with your money invested every month.
In this way, when the share price is low, you get more units. When the
share price is high, you get less units. In this way, if you look at the
period of one year, the average purchase price is relatively low. This is
called cost averaging benefit. Hemant Beniwal, director of Arc Primary
Advisors, says this is the biggest feature of investment from SIP, because you
cannot know when the market will rise and when it will fall.
Discipline in investment
One big advantage of investing with SIP is that it keeps you disciplined in
terms of investment. Every month, a certain amount is transferred from the
bank account to the mutual fund company. Beniwal says that if you open
SIP, you will never spend more than necessary. You know that the fixed
amount will go out of your account every month on the fixed date and go to the
mutual fund company. In this way discipline remains in investment.
If you are thinking of investing more by increasing the amount of lump sum or
SIP then do this only if your financial goals are far enough. Do not
invest just because the market is still down. Do not make any investment
in panic whether it is related to the sale of shares or the purchase of them.
We are currently in a warlike situation. Remember that the time has come
to apply what you have learned in a good time. For example, in peace, you
have learned that equity mutual funds are for a long period. You have
learned to remain calm in the fall. It has also declined earlier. We
are in decline. Will fall further. It is an aspect associated with an
economy. So stay connected with the basics. Take care of yourself.