Firstly, let us understand the causes of negative returns and how it brings about changes in mutual funds. Below, are a few aspects that have affected the market in recent years and brought about changes in the mutual fund.
The rise in the prices of crude oil and withdrawal of financial institutional investors caused the downfall of Indian currency thereby causing an imbalance in the economy.
Default by IL & FS and DSP MF selling non-convertible debentures of DHFL in addition to the increase in the 10 years bond value in India has affected the market to a large extent.
Weak Asian market and on-going correction phase in the small and mid-cap sectors
The ongoing elections may also affect the returns in SIP plans as people fear the uncertainty until the results are declared. However, after the elections are over, the market usually picks up and does well.
Tips during the market downfall:
A low- market should always be seen as an opportunity rather than a misfortune
As the NAV remains low during this phase, an investor should stay invested as more units are purchased during such a low phase
Investors may make an additional purchase during the low-phase as it will help enhance the returns over time
When to invest in SIP?
The biggest advantage of investing in a mutual fund is that you can invest in it regardless of the market condition. You may invest it through SIP for a long-term. This will shield your investment against market volatility. You may invest in SIP any time regardless of the market ups and downs. However, make sure that you select the proper tenure of the investment.
Here are a few tips for selecting a SIP Plan
Fund House: Make sure that you research the fund house that is offering the scheme of your choice. It will help you understand its values, strength, functioning, etc.
Fund manager: A fund manager plays a key role as all investment-related decisions are taken by him. There may be more than one fund manager to handle schemes that include different instruments. Make sure that your fund manager is well qualified, experienced and know their investment strategies.
Risk: Before investing in any fund house, you must understand your risk taking capacity. Do remember that all the schemes come with a certain amount of risk. Choose a fund that has a robust risk management system and will help you get maximum benefits.
Past performance: One of the best ways to understand a scheme is to study its past performance. It will give you a fair idea about how it can perform under different market conditions. Try and study the average annual returns and the rate of return since its inception. This will enable you to select the right fund to invest in.
Portfolio management: In order to reap maximum benefits from your investment, make sure that there is proper asset allocation. While a structured and diverse investment portfolio may help minimize the risk, investing in stocks may help you get better returns. So, think wisely.
Conclusion
The best way to beat the negative return is to stay calm and stay invested for a long time. This will help you enjoy rupee cost averaging benefits as well as the power of compounding. In case you still are confused about funds and its working, it is recommended that you seek help from a reliable and experienced financial advisor.