My mid-cap MF investments are giving negative returns. Why is it so and should I stop my SIP?
The last few months have seen a corre-ction in mid & small-cap stocks which has not been reflected in the headline indices like Nifty and Sensex. As a result, one may have experienced negative returns on such investments. However, this cannot be a reason to discontinue SIPs because the very essence of SIPs is rupee cost averaging which works only if one continues to invest when markets are low. If you stop SIP investments now, you may miss an important averaging opportunity, which will reduce the efficiency of your SIP and its long term performance.
Can index funds gen-erate higher returns in the long run?
While index funds have lower costs associated with them, there is no assurance that this will result in higher returns over time. In India, many actively managed funds have outperformed indexes despite higher costs. Even a small quantum of outperformance over extended periods of time can make a dramatic difference to the final outcome. For example, `1 lakh compounding @ 11% for 20 years will become `8.06 lakh, but the same amount compounding @ 12% over the same period becomes `9.64 lakh, a difference larger than the initial investment itself.
l In balanced funds, can I increase or decrease equity part every month?
—K A Budhrani
No, the equity component of a hybrid fund is managed by the fund management team and is maintained at a broadly constant level in line with the scheme’s approved document. The idea of a hybrid fund, including balanced funds, is to maintain a constant asset allocation which is in line with investor’s risk profile regardless of market movements and outlook. Once invested in such products, it is best not to disturb the allocation because risk profiles do not change in response to market conditions. These products force a discipline which helps in cutting emotions out of the investment decision making process, and maintaining a portfolio perfectly suited to one’s needs.
By- Rajiv Shastri,The writer is executive director & CEO, Essel Mutual Fund. Send your queries to fepersonal firstname.lastname@example.org