I have been investing in SBI Nifty Index fund through SIP for last six months. My present fund value is less than my investment. Should I continue in this fund?
—P V Sobhan
Equities are the most favoured asset class for wealth generation over the long term, with the potential to deliver superior inflation-adjusted returns compared to fixed-income. Markets have seen some correction recently amid concerns over valuations, U.S. Fed tapering and more recently the Russia-Ukraine geopolitical tensions. Hence, the decline in value below the principal invested. The SBI Nifty Index Fund is an index fund that aims to track the performance of the Nifty 50 index. It has delivered 19.75% over the past one year (as of March 18, 2021), and 43.8% annualised in the trailing 2-year period, which is broadly in line with the performance of the Nifty 50 index.
A look at the historical index growth of the broader equity market index (S&P BSE 500) shows that markets have scaled higher peaks through time responding to drivers such as earnings growth, dividend payouts and change in valuations. Over long horizons (10+ years), equities can be expected to deliver real returns of 4-5% over the long-run inflation rate (5-6%). Withdrawing any corpus would lower your portfolio value and you may lose out on any subsequent gains on the withdrawn corpus that would have accrued till the end of your investment horizon. You should consider rebalancing your asset allocation back to your recommended long-term asset allocation in case of any material drift due to the recent market correction. Any sharp correction in the market in response to short-term events should be seen as an opportunity to buy into the market.
Do I need KYC verification again to open another SIP with a different mutual fund?
A know your customer (KYC) compliant individual is not required to go through the KYC process again when starting SIP with different mutual fund houses. All mutual funds have facilitated a centralised platform through CVL, NDML, DotEx, CAMS & Karvy to carry out the KYC procedure on their behalf. Once registered with them, you can invest in any mutual fund.
The writer is director, Investment Advisory, Morningstar Investment Adviser (India). Send your queries to firstname.lastname@example.org