What you can do when your SIP returns turn negative

Systematic Investment Plans (SIPs) allow investors to contribute a fixed amount at regular intervals in a mutual fund of their choice. However, like any investment, SIP can sometimes yield negative returns, showing losses instead of the expected gains. This situation can be alarming, especially for new investors, and may lead to panic decisions not in line with one’s long term investment strategy.

Therefore, understanding what to do in such scenarios is crucial, not just to stabilise your investment but also to potentially turn the situation around in your favour.

• Table of contents

1. What to do when your SIP turns negative
2. Key reasons why your SIP might be losing money
3. Evaluating your SIP strategy regularly

What to do when your SIP turns negative

When you find that your SIP returns are in the red, the first and most important thing is to stay calm and to adopt a strategy that can help you understand the situation better. Here are a few things to do when your SIP turns negative:

Don’t redeem your investment in a rush

First and foremost, it's important not to panic. SIPs are designed for long-term investment, and the equity markets are naturally volatile in the short term. Nearly every investor faces such a situation at least once during their investment journey. Redeeming your investment hastily because of temporary losses could mean missing out on potential gains when the market recovers.

Compare the performance of the fund

When your SIP turns negative, start by comparing your fund’s performance with others in the same category. If most funds in the category are experiencing similar trends, the negative performance might be due to market-wide issues rather than the fund itself. It is also a good idea to compare your fund with those in different categories. This can give you a broader view of the market and help you understand if your investment strategy aligns with the current economic environment.

Understand what is causing the situation

To best understand what may be causing your negative returns, study the sector(s) that your SIP invests in. Sometimes, specific sectors might be underperforming due to regulatory changes, shifts in consumer behaviour, or other factors. Understanding these factors can provide clarity on whether the negative SIP is a temporary setback or part of a larger trend.

Choose to diversify

Diversification is essential when it comes to managing risk in investments. If your SIP is concentrated in a particular sector or category that is showing losses, consider diversifying your portfolio across different sectors or asset classes to mitigate risk.

Understand the risk and reward balance

Investing in SIPs involves understanding that risk and reward are two sides of the same coin. A higher return potential often accompanies higher risks. Acknowledging this can help you maintain a balanced perspective during downturns.

Expect the market to recover over time

History shows that the markets generally recover over time. A negative SIP today does not mean it will stay that way. Being patient and maintaining your investment can allow you to benefit from the market's eventual upturn.

Key reasons why your SIP might be losing money

While poor management of a fund can lead to underperformance, that is just one of several possibilities. Your SIP can lose money for many reasons. Market volatility may impact short-term returns, especially if you began investing during a market high. Economic downturns, geopolitical events, or industry-specific declines can also lead to temporary losses. Additionally, some SIPs may be tied to underperforming funds or sectors, which can weigh on returns.

Remember that SIPs work best over the long term. Staying invested, reassessing your fund’s performance, and consulting a financial advisor can help when your returns are negative or below expectations.

Evaluating your SIP strategy regularly

An often overlooked but important aspect of managing your SIP investment, especially when facing negative returns, is the regular evaluation of your investment strategy. This doesn't mean reacting to every market fluctuation but conducting a thoughtful review of your SIP portfolio at least once a year.

During this review, assess whether your SIPs are still aligned with your financial goals and risk tolerance. Economic conditions, market trends, and personal financial situations change over time, and your investment strategy should evolve accordingly. This might involve rebalancing your portfolio, switching to a different fund, or even increasing your SIP amount to take advantage of lower prices in a down market. You can take the help of an SIP calculator to ensure that your SIPs align with your investment objectives.

Therefore, by staying informed and flexible, you can make adjustments that not only stabilize your investment from further downturns but also position it for potentially higher growth when the market recovers.

Conclusion

Seeing your SIP investment turn negative can be disappointing, but it is a scenario many investors face at some point. The key is not to panic but to approach the situation with a calm and strategic mindset. By understanding the broader market trends, comparing your fund's performance, and possibly diversifying your portfolio, you can deal with the downturn effectively. While staying calm and reviewing your SIP strategy is crucial during negative market movements, tools like lumpsum SIP calculator can help you prepare for different investment scenarios beforehand. They can help you assess your return potential based on your investment amount, tenure and expected returns. You can try different return rates based on different market scenarios to prepare yourself for volatility. Do note, though, that the calculator's projections are indicative and there is no assurance that returns will be along estimated lines.

FAQs

What should I do if my SIP turns negative?

Stay calm and avoid redeeming your investment in haste. Compare your fund's performance with others, study the market, and consider diversification. Remember, markets recover over time.

Is it normal for SIPs to experience losses?

Yes, SIPs, like any market-linked investment, can go through phases of negative returns due to market volatility. This is a normal part of the investment process.

How can I prevent losses in my SIP?

While you cannot completely prevent losses, diversifying your investment and maintaining a long-term perspective can help mitigate risks and improve the potential for gains.

Do SIPs give guaranteed returns?

No, SIPs don’t provide guaranteed returns. Mutual funds invest in market-linked instruments, which are subject to market fluctuations.

Mutual Fund investments are subject to market risks, read all scheme related documents carefully.
This document should not be treated as endorsement of the views/opinions or as investment advice. This document should not be construed as a research report or a recommendation to buy or sell any security. This document is for information purpose only and should not be construed as a promise on minimum returns or safeguard of capital. This document alone is not sufficient and should not be used for the development or implementation of an investment strategy. The recipient should note and understand that the information provided above may not contain all the material aspects relevant for making an investment decision. Investors are advised to consult their own investment advisor before making any investment decision in light of their risk appetite, investment goals and horizon. This information is subject to change without any prior notice.