What if my SIP returns turn negative?

Investing in mutual funds has suddenly become a difficult proposition for a section of investors. Due to volatile stock markets, these investors ask a question – what if my SIP returns turn negative??

Before we get into the answer to this question, let’s spend some time understanding why investors (should) choose a systematic investment plan (SIP) and why do the question pertaining to SIP returns turning negative surface at this moment.?

The timing of the question is more important. Ongoing volatility in the stock markets has made many investors think about their investments in mutual fund schemes through SIP. Just to put it in the right context, the India VIX, the volatility measure of the volatility on the Dalal Street, quoted at six months high on January 21, 2025. Though crude oil prices have cooled off after Donald Trump’s inauguration as the US President, the uncertainty around the imposition of tariffs on goods and services in India along with other emerging markets, by Trump Administration is a chief cause of investors’ worries.?

To add to investors’ worries is the backdrop of a weak rupee against the greenback. Foreign portfolio investors (FPIs) are dumping Indian stocks. In CY2025, till January 21, 2025, FPIs have sold equities worth Rs 51,748 crore. The quantum and pace of selling is unheard of. In CY2022, FPIs sold equities worth Rs 1.21 lakh crore. In CY2008, FPIs had sold stocks worth Rs 52,987 crore. These numbers should explain why the financial markets are in a worrying mood.?

No wonder a section of mutual fund investors ask about the future of their investments. For the time being, the monthly SIP contribution remains on strong footing despite incessant selling by foreign investors. In December 2024 it stood at Rs 26,459 crore compared with Rs 17,610 crore a year ago.?

SIP’s popularity is rising and many investors look at it as a preferred tool to invest for their financial goals such as retirement and child’s education.?

And this is a valid approach which answers why investors should choose SIP while investing in mutual funds. SIPs are a series of investments in mutual fund schemes at regular intervals, say daily, weekly or monthly. These regular investments help the investor to benefit from rupee cost averaging. When stocks are down, investors get more units and when stocks are rising, investors get less number of units. This approach helps investor accumulate units of mutual fund units and over long term she sees capital appreciation when the stock markets climb new highs.?

Most investors ignore the possibility that SIPs can offer negative returns in the short term, though over the long term. When stocks keep falling over extended periods, SIP returns negative. This is normal and can occur in the financial markets.?

For example, an SIP of Rs 10,000 per month over last one year (12 instalment) in an index fund tracking the Nifty50 index, is offering 209% loss as on January 21, 2024. Here investment amount is Rs 1,20,000 and the value of the units is at Rs 1,18,639. On small and midcap equity funds SIP returns are still positive.?

Investors should not panic even if the one-year SIP returns turn negative.?

Many times in the past, investors have experienced the old wisdom in the financial markets – it is the darkest before the dawn.

This can be a good time to invest more money in addition to existing SIP commitments. Supplement SIP with lumpsum investments in diversified equity schemes Multi-cap equity schemes, flexi-cap equity schemes and multi-asset schemes can be effective at this moment. Equity markets are evolving. As clarity emerges about changing geo-political situation in the world, global trade and interest rate movements, we may see new market leaders.?

Diversified equity mutual funds are more likely to benefit over medium to long term. Investors hence should start deploying lumpsum money along with their SIP. If they are contemplating investing large sums, then they can also invest using systematic transfer plans (STP) over the next three months or so. In this case, the money is kept in an overnight or liquid scheme and then the fund house is instructed to switch a fixed sum out of a debt fund to the desired equity fund at regular interval – typically every day. In this case, an investor benefits from day to day volatility in the markets and the timing risk also stands reduced.?

This is the time to look at SIP and mutual fund investments as means to create wealth in the long term and avoid unnecessarily worry about returns in the short term.

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Disclaimer: This report is prepared in his personal capacity and neither the Author nor Money Honey Financial Services Pvt Ltd assumes any responsibility or liability for any error or omission in the content of the article. Investments in mutual funds and other risky assets are subject to market risks. Please seek advice from an investment professional before investing.

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