Should I stop my SIP?
The answer is an unequivocal no. SIPs in equity funds
are for the long haul, at least 7-10 years. Investors should not change their horizon now. “You choose the SIP mode of investing to be able to buy units cheaper when the markets are down and reap the benefit of rupee-cost averaging. By stopping your SIPs, you will forgo this advantage,” says Vishal Dhawan, chief financial planner, Plan Ahead Wealth Advisors.
Some investors are asking if they should stop their SIPs now and restart them when the market becomes cheaper. “The whole purpose of running an SIP is to remove the need for such market timing,” says Dhawan.
Should I change my category? Until recently, large-cap funds were doing better than mid- and small-cap funds. So, investors are asking if they should shift from the latter to the former. The answer depends on your existing portfolio. “If at the time of investing, you had assessed your return profile and done proper category allocation, there should be no need for large-scale shifts from one category to another,” says Kaustubh Belapurkar, director-manager research, Morningstar Investment Adviser India. Ideally your portfolio should have some exposure to all the market caps. “Shift not because a particular category is doing better but to make your portfolio more balanced,” says Dhawan.
In 2017, mid- and small-cap funds had outperformed in a big way. Many investors who entered the market that year put all their eggs in the mid- and the small-cap baskets, creating high-risk portfolios. Such investors should increase exposure to the large-cap category. “There may also be an investor who had booked profits and moved out of the mid- and small-cap categories in the latter part of 2017 because he found them to be overheated. He may have moved completely into large-cap funds. Such an investor can now add mid- and small-cap funds to his portfolio,” says Vivek Agarwal, co-founder, Upwardly.in, an online advisory and investment platform. Adds Gupta: “The risk-reward for the mid- and the small-cap categories is better today than for large-caps.”
The bottomline: Build portfolios diversified across categories to be able to capture returns across years. “There will be some years when large caps will outperform mid- and small caps, and others in which the latter will do better,” explains Gupta.
Should I change my fund? Many investors are seeing another fund within the same category doing better and are wondering if they should shift to it. Experts say if you had chosen your fund manager carefully, there is no need to change your fund even if it is lagging currently. Different fund managers follow different investment styles. In a given market, one investment style will do well while others will not. Investors need to be patient to reap the benefit of their fund manager’s style.
Change your fund only in a few circumstances. “If the fund manager based on whose record you had invested has quit, the fund is not being true to its mandate, or the fund house is in trouble, then you may change your fund,” says Agarwal. If your fund is underperforming, give it time. “If your SIP has been running for one year and the fund is underperforming, give it one more year,” says Dhawan.
Morningstar conducted a study in the US and several other developed markets recently covering 15 years up to 2018. It mapped the outperformance of active funds vis-à-vis their indices for each of the 180 months. “We found that just 5 per cent of the total months accounted for the bulk of an active fund’s outperformance over its index. If an investor was not present in a fund during those months, he would have fared no better than if he were in an index fund,” says Belapurkar. When you shift to a fund that has been doing well lately, you may be entering one whose strong run is behind it and exiting one whose performance may be poised for a take-off.
Should I invest more now?
This is a good idea. However, avoid lumpsum investments.
If the markets fall, the value of your investment will erode. “Stagger your investments
over 6-12 months,” says Belapurkar.
Having an allocation to debt to make your portfolio more stable. Buy a US-focused fund to diversify internationally. Get an investment advisor if you need one to handhold you during turbulent market conditions. Finally, remember that investors who keep investing during downturns make money over the long term.