SIP investors in MFs hit the most by equities drop

SIP

Mumbai: Contrary to general belief, investors through systematic investment plans (SIP) in mutual fund schemes seem to have suffered more compared with the non-SIP investment mode, owing to erratic movements in the stock markets over the past three years.

A SIP is a commitment to invest a certain amount every month or quarter in a mutual fund scheme on a particular day fixed by the fund house. The SIP can be initiated by giving post-dated cheques to the fund houses or through an auto-debit from your bank account.

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Diminishing returns

Investments through SIP in SBI Magnum Taxgain over three years would have diminished by 36 per cent by February as against a 21 per cent negative return for a non-SIP investor, while SIP investors in Kotak Tax Saver have suffered a loss of 40 per cent against 22 per cent for a non-SIP investor (see table), according to Value Research data.

MFs make stock-specific additions in February

After a steep climb to 21,000 levels in early 2008, the bellwether Sensex began falling sharply in January 2008 and crashed to 8,891 points on February 27. Though the loss incurred by a scheme may vary according to its tenure, the erratic markets have resulted in poor returns for many SIP investors over the past three years.

While SIP investors are bound by the commitment to invest on a particular day, a non-SIP investor can invest any time when the market is down so that he gets more units.

Claiming that SIPs remain a good route to mutual fund investing despite such disadvantages, Mr Lokesh Nathany, a Certified Financial Planner, said: “One may ignore SIPs if you have perfected the art of timing the market. But leave alone the retail investors, not even experts have succeeded in this attempt.”

Big mutual funds get larger in market upheaval

Investors turn wary

Hit by the poor showing, many investors for the obvious reasons are now discontinuing their investments through SIP in a hurry.

Sudipto Roy, Business Head, Principal PNB Asset Management Company, said: “People are making a mistake by discontinuing their SIP at this juncture as they will lose the benefit of getting more units and averaging out the cost. The euphoria to open a new SIP has faded in the last six months.”

Principal PNB is holding educative programmes for investors and distributors to convince them not to discontinue SIPs.

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Dhirendra Kumar, Chief Executive Officer, Value Research, said: “Returns from SIPs in the last three to four years horizon may be in red, but over a longer period of time investors always stand to gain. In fact, it is the right time to start a SIP.”

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