Numerous articles on SIPs have been highlighting the fact that most Systematic Investment Plans or SIPs have failed to deliver decent returns in the last 1, 2 and even 3 years.
By decent returns, it would mean that the returns would probably not match even bank deposits. If you look at the one year returns, than most mutual funds have probably not delivered any significant returns and many have delivered negative returns. The 3 year returns of most have been almost similar to the interest rate on bank deposits. This has left a big question mark on whether SIPs and equity mutual funds are actually worth the while.
The first thing to do is moderate your expectations. Gone are the days when the returns were an astounding 18 per cent and in some cases as high as 30 per cent in select small cap funds. In fact, there were some small cap funds that had generated a 1-year return of almost 30 per cent.
Returns from midcap funds over 1 and 3 years
|Name of the fund||1 year returns||3 year returns|
|DSP Midcap Fund||-2.23%||5.14%|
|HDFC Midcap Opportunities||-11.30%||3.00%|
|Kotak Emerging Equity||-5.27%||5.06%|
|Axis Midcap Fund||-2.80%||9.80%|
|L&T Midcap Fund||-12.81%||5.87%|
Another important thing to remember is that if you have got significant returns, you must take profits off the table.
It's difficult to buy the argument that you should invest for long term. When you know that you have received reasonable returns, there is no reason why you should not book profits.
Returns from largecap funds
|Name of the fund||1-year returns||3-year returns|
|Axis Bluechip Fund||-3.17%||11.42%|
|SBI Bluechip Fund||-0.65%||5.37%|
|ICICI Prudential Bluechip Fund||-3.33%||7.37%|
|Reliance Largecap Fund||-5.79%||7.27%|
Move money into debt schemes
If you have made money, there is also another option, where you can partially move your money into some debt schemes, if the markets keep hitting historic highs and you believe the markets are overvalued.
Having said that the important thing to remember is that it is very difficult to time the market and hence you should strictly go by the returns you have generated.
Sometimes, a debt fund maybe a good option to look at.
Markets are down, so keep your SIPs going
At the moment, the Nifty is down a good 9 per cent from historic levels and hence it makes sense to buy more into SIPs. At current NAVs of most equity mutual funds, there is a scope of generating decent returns over the medium to long term. So, go ahead and buy now and book profits if you have made reasonable amount of money.
For example, at 40,000 on the Sensex, the markets were overvalued as the Sensex was trading 22 times one year forward earnings. With the present fall (8 per cent from peak levels), it is more nearer to long term averages, which means buying equity MFs at the current NAV does make sense.