If you have deployed your entire surplus money in mutual funds in lumpsum or your entire surplus each month into SIPs (Systematic Investment Plans), you have made a mistake.
The ideal way to invest is to always to keep some amounts with you, so you can deploy when the markets crash.
The Sensex has crashed 12 per cent or 4,500 points in less than two months.
The prudent way for SIP
The only way you are going to make returns in mutual funds, is to increase your exposure when the market falls. For example, if you are having an SIP of Rs 20,000 per month, you may want to increase the same to Rs 25,000, if the Sensex falls from say Rs 34,500 to Rs 33,500. If it falls further you might want to increase the SIP further.
On the other hand if the markets once again rally and the Sensex hits a peak level of say 38,900 points (Aug 29), you might want to start taking profits and cut your SIPs.
The simple mantra to make money, is to buy "low" and sell "high". There is no other way you can make money. So, if your investment advisor is telling you deploy all your money at one go, be careful.
Mutual Fund Returns Take A Hit In Market Carnage
Returns from mutual funds have taken a solid hit in the present market carnage, with one year returns now even turning negative in some cases. Even the three year returns are very nominal considering returns from fixed income securities.
Multi cap funds
Take the case of some of the bigger multi cap funds like HDFC Equity. The returns from the fund has been just about 1.07 per cent in the last one year, while the three year returns are around 9 per cent.
The 5 year returns from the fund is more respectable at 17.12 per cent. Take the case of Aditya Birla Sunlife Equity Fund (regular). The one year return of the fund is -5.63 per cent, while the three year returns is 10.36 per cent.
SBI Equity Hybrid Fund, which has sizeable assets under management of almost Rs 28,000 crores, has reported a return of just 1.47 per cent over the last one year, while the three year returns from the fund have been 9.07 per cent.
Small cap funds have performed better in the longer term
For the small cap funds the last one year has been a disaster, while the last three and five years have been really good. For example, Reliance Small Cap Fund has reported a return of negative 4.25 per cent for the last one year, while for the last three years, it has reported a superior return of 13.37 and for the last 5 years, a solid returns of 32 per cent.
Similarly, SBI Small Cap Fund has reported a returns of negative 4.56 in the last one year, while the three year returns have been 14.88 per cent and 5 year returns have been placed at 31 per cent.
It is important to remember that the 5 year returns from small cap has been exceptional as the prices than were very low. It will be difficult to replicate those kind of returns every year.
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