Stay invested in Systematic Investment Plans during volatile time

Recently, one of my clients met me at the office and was wondering if it’s wise to continue his Systematic Investment Plans (SIP) into the MF. My first reaction was to know why he thought of discontinuing them.

He has been investing only for about the last year-and-half. He said he’s stung by the volatility and also finds his portfolio has underperformed, especially some of his funds’ value is in negative i.e. lesser than the overall invested value.

He queried me if the recession is in the offing as some of the experts are pointing at the US economic situation. And wanted to know for how long would the recession last? He also observes that the liquid funds in his portfolio which are being used to move into equity funds through Systematic Transfer Plan (STP) have given better return than the rest of the portfolio.

I have recorded all his queries and quizzed him about the reasons why he had begun to invest at the first place. Also asked him the timelines and goals for which he has been investing for. As we dug more into the history, he realised the very rationale for the current portfolio construct and the choice of timelines to contribute through SIPs. The portfolio perfectly reflects the various thoughts, ideas and goals he had planned earlier but wasn’t impressed with the current returns.

We have then embarked on the analysis of whether the funds in his portfolio are underperforming against the benchmark and if the underperformance is endemic to the chosen funds or is it reflective of the broader market. I also wanted to check the period of non-performance and if it is matching with that of the broader market weakness or specific to the fund. Next, we wanted to check the fund performance vis-à-vis the peer group and how are they placed when pitted against the rest of the category.

I however, explained him about the various cycles the markets churn and brought forth the instances of how the current lower levels could be used for better averaging in the long run. Of course, I have suggested that we could discard to invest further or even pull out the fund if they fared badly with respect to the category and peer group.

For this we have first classified the entire portfolio according to their category of cap and style of investing. Once, the categorisation is done, we could see if there are any overlaps of funds within the same category. We checked for the past performance of the fund since the time of investing and compared it with that of the category. We checked for the deviation from the norm and if it’s positive or negative. Then we juxtaposed it against the peer group to find if the fund is present in the first quartile of the category or not.

We looked for any funds which were in underperformance and checked their period of underperformance. If there is a disconnect with the fund with that of the broader market and its category, then a flag is raised on such funds. I desisted from taking any action at this point of time, considering the tenure of investment is still low and also the current market conditions would not warrant for such changes especially that are being done through systematic contributions.

Overall, this exercise has re-aligned the investor’s initial intent and also helped him realise the reasons for investing. Also, it has identified some of the weak links with in the portfolio that needed an additional attention for monitoring. With the current macro-economic situation, geo-political environment and being an election year, it’s ideal for investors to continue to stay invested in equity markets.

The latest budget has also reiterated that the Indian growth story is intact and would continue to prosper in the coming years. It’s hence imperative for investors to continue to stick to the plan and use staggered ways of exposing monies to the markets for better returns in the long run. (The author is a co-founder of “Wealocity”, a wealth management firm and could be reached at [email protected])