Understanding the Changing Dynamics of SIP Returns
Systematic Investment Plans (SIPs) have long been a reliable entry point for retail investors into the share market. These investments spread over time, reduce the risk of market timing, and are often seen as the preferred approach to long-term wealth creation. However, there are phases where SIP returns don’t match investor expectations — especially during prolonged market stagnation or correction phases.
When such underperformance continues over quarters, many investors begin questioning their mutual fund strategy. While it’s natural to feel concerned, it’s also essential to understand that the share market is inherently cyclical, and not all mutual fund categories behave the same during different economic conditions.
This article explores what investors can do when SIP returns seem to stall and how to adjust mutual fund strategies to stay aligned with financial goals.
Why Do SIP Returns Dip?
Market Volatility and Economic Shifts
One of the core reasons behind falling SIP returns is overall market volatility. During economic downturns or global disruptions, equity-oriented mutual funds often reflect negative or flat performance, which can affect the portfolio’s compounded growth.
Sector Underperformance
Another factor could be the underperformance of specific sectors. If your SIP is linked to a fund heavily exposed to one sector — say infrastructure or pharma — and that sector is underperforming, the effect is evident in your returns.
Fund Management Changes
A change in fund management strategy, or a shift in the fund manager’s investment approach, can influence the fund’s direction. If these changes are not closely monitored, the SIPs might be channeling into a fund that no longer matches your investment intent.
How to Assess and Adjust When SIP Returns Are Low
1. Review the Investment Horizon
SIP returns should always be evaluated over an extended period. If your horizon was initially five years or more, temporary low returns should not be alarming. Check whether your SIP aligns with this long-term objective, or if there’s been a shift in your financial planning that now requires different fund characteristics.
2. Compare Fund Performance Within Its Category
Instead of looking at absolute returns, compare your mutual fund with its category average and the benchmark index. If your fund consistently underperforms both, it might be a signal to reconsider its place in your portfolio.
3. Rebalance Portfolio Allocation
When SIPs in a particular fund fail to yield returns over time, rebalancing your portfolio becomes important. Shifting some capital into more stable or better-performing categories — like hybrid or balanced funds — can reduce exposure to risk without exiting the SIP mode entirely.
4. Diversify Fund Types
If your SIPs are concentrated in a few funds, consider diversifying across categories — such as mid-cap, small-cap, debt-oriented, and balanced funds. A diversified SIP strategy can protect the portfolio from individual fund underperformance.
Steps to Realign Your Mutual Fund SIP Strategy
1. Stop, Pause, or Continue?
Stopping an SIP immediately may not be the best move. Instead, review whether pausing for a short term helps you reassess. This avoids making emotionally driven exits during low points.
2. Start Parallel SIPs in Other Categories
Rather than discontinuing, starting a parallel SIP in a different fund category may provide better exposure. For instance, during equity stagnation, debt or hybrid funds might provide relative stability and yield.
3. Monitor Fund Objectives and Holdings
Keep track of your mutual fund’s objectives and the assets it holds. If the investment style or the asset mix has significantly changed from your original plan, it may warrant reallocation.
4. Don’t Base Decisions on Short-Term NAV Movements
Net Asset Value (NAV) changes can be misleading in short periods. The underlying assets need time to perform. Evaluate SIP performance over three to five years to make well-informed decisions.
What Not to Do When SIP Returns Decline
Avoid Panic Selling
Withdrawing investments during a market dip can lock in losses. Selling based on fear interrupts compounding and may harm your long-term wealth-building strategy.
Don’t Time the Market
Trying to shift SIPs based on short-term market predictions rarely works for most investors. SIPs work best because they average out costs over time.
Skip Frequent Churning
Changing funds too frequently without strategic analysis can lead to higher transaction costs and tax implications. Stick with a disciplined and well-reviewed plan.
Importance of Regular SIP Monitoring
While SIPs are designed to function with minimal manual intervention, regular monitoring (quarterly or biannually) helps in spotting underperformance early. Set reminders to check:
- Fund’s performance against benchmark
- Fund manager’s investment strategy
- Market trends that may impact your fund’s category
- Allocation ratio among fund types
Monitoring doesn’t mean reacting impulsively — it means staying informed.
Should You Consider Professional Advisory?
If you’re unable to assess SIP performance or the reasons behind falling returns, seeking professional guidance may be helpful. A registered advisor can help you realign your portfolio according to your goals and current market conditions.
Conclusion
Low SIP returns can be discouraging, especially when expectations are based on past bull runs or peer performance. However, long-term investing, especially in the share market, is bound to witness temporary downtrends.
The key lies in maintaining a rational, goal-oriented approach. Adjust your mutual fund strategy when necessary, diversify your SIP investments, and focus on long-term results instead of short-term turbulence. Staying patient, consistent, and well-informed will ensure that your financial goals remain on track — even when markets take a detour.