If a fund has been performing poorly on a consistent basis, you may switch to a better performing one.
I have been investing in SIPs for the last three years without much returns. I plan to redeem it and invest in fixed deposits that will give me better returns. For a student who is her final year of PG and will have to start paying back her student loans around this time next year, what would you recommend is the best way forward? Should I reinvest this amount in another SIP with a short investment horizon?
– Anju Sai Easwari
SIPs are a mode of investment facilitating regular investments, enabling an investor to average out the cost of his investments. When you accumulate units in a correction phase, you are getting more units while prices are down. Hence, you should continue your SIP if you are investing for the long term (more than 7 to 10 years) as you would benefit from buying units cheap. Recently, equity markets have corrected sharply owing to slowdown in the economy and insuff-icient fiscal stimulus to revive demand.
Given your loan repayments starting within a year, you may redeem your investments and allocate the current corpus and future SIPs towards short duration accrual fixed income funds with high portfolio credit quality such as banking &; PSU debt funds, corporate bond funds which currently offer a higher yield than FDs. You may retain some portion of current equity corpus allowing some time for the investments to recover and later withdraw it systematically to meet your cash needs. You should also evaluate the performance of the funds in your portfolio vis-à-vis that of their respective category peers. If a fund has been performing poorly on a consistent basis, you may switch to a better performing one.
When starting my SIP investment, I had noted the time period for five years. Do I have to give a fresh mandate to continue the SIP for another five years?
Yes, one needs to re-register an SIP to continue the periodic investments, if a fixed period was selected for investment at time of registering for the SIP. This is unlike the ‘Perpetual SIP’ option, wherein your SIP would continue indefinitely. You may re-register for the SIP online or through the physical mode. Typically, AMCs send reminders towards the end of your SIP term and also send an SIP registration form at your registered address.
(The writer is director, Investment Advisory, Morningstar Investment Adviser (India). Send your queries to firstname.lastname@example.org)