Is it time to stay the course or consider an exit?

Equity SIP investors face short-term losses as market volatility drags returns into negative territory, prompting concerns while experts recommend patience and disciplined investing during uncertain global conditions.

Systematic Investment Plans (SIPs) have long been touted as a great way to build wealth. However, SIP returns are currently in the red across categories due to market volatility amid the ongoing Iran conflict. Let’s see how SIP returns have been impacted by recent events.

Investors growing wary as SIP returns turn negative

Indian equities have seen a sharp sell-off over the last few weeks on account of geopolitical tensions and pervasive uncertainty. Buoyed by blistering runs over the past year, markets have been experiencing deep corrections lately.

Reports suggest that the Nifty has given up almost 13% since its peak. However, mid- and small-cap stocks have corrected by even wider margins.

SIP returns turn negative

According to recent figures, one- and two-year SIP returns across most categories of equity mutual funds are now in the negative.

Category 1-Year (%) 2-Year (%) 3-Year (%) Large & Mid Cap -12.3 -4.1 5.2 Large Cap -13.5 -5.2 2.9 Mid Cap -10.4 -3.3 7.3 Small Cap -15.4 -7.8 2.3 Flexi Cap -13.5 -5.2 3.9 Nifty 50 -14.9 -4.7 2.2

Meanwhile, even three-year returns across categories look sluggish at best. Returns over the longer-term remain robust though. 10-year SIP returns across categories are positive, with some categories fetching upwards of 15-17% annualised returns.

Why are SIPs giving negative returns?

Analysts point towards several factors dragging down SIP returns:

Geopolitical headwind: Panic-selling ensued after the outbreak of conflict in Iran

PeakValley: Bull market may have come to an end; markets are now correcting

Mid/small-cap rout: SIPs with higher exposure to mid/small caps have been hit harder

Markets have come under severe pressure as investor wealth has been wiped out by the Iran conflict. It is estimated that trillions of dollars have been erased from investors’ wealth just this month.

Will SIP investors lose money now?

Analysts point out that investors should not stop SIPs if they have a long-term goal, typically around 5-10 years. “It’s true that SIP investors are witnessing negative returns for the first time in a while. However, they panic sell at the bottom of the cycle and fail to participate in the next leg-up of the market,” says a strategist.

Rather than pulling out their investments, experts recommend investors use volatility to top-up their SIPs. This can increase the number of units purchased at a lower price and help improve returns when markets rebound.

What should investors do with their SIPs?

Analysts advise retail investors to look at their portfolio and take a structured approach.

“If investors have been impacted across all their investments, the broader market is down and it might be a good idea to hold on. SIP investors can continue buying units through their SIPs,” says Kumar Patel, founder, FITHellion.

“If however your funds have underperformed but the broader markets are holding up, you might want to pause your SIPs in those funds and divert the money to debt funds or gold,” he added. Investors should remember that SIPs are a long-term investment mechanism. Market dips are normal and can provide investors with a chance to top-up their investments if they have the means.

Final thoughts

Have panic sales set in? Data will tell us better soon. Till then remember, SIPs have worked for those who stayed invested for long enough. Will you?