Five Equity Mutual Funds Post Heavy Losses for SIP Investors Over One Year
For investors using the popular systematic investment plan (SIP) route, recent market volatility has delivered a sharp reminder of short-term risks. New data shows that five equity mutual fund schemes have generated deeply negative returns for SIPs started one year ago, with losses exceeding 20% in that period.
Understanding the Scale of the Losses
The returns, calculated using the Extended Internal Rate of Return (XIRR) method, range between minus 20% and minus 28% for these five funds. To put this in practical terms, consider an investor who started a monthly SIP of Rs 10,000 in one of these funds in April 2023. After twelve months of consistent investment, totaling Rs 1.2 lakh, the current value of their investment is likely only marginally above their total contribution amount, or potentially even below it. The negative XIRR indicates the investment has lost significant value on the capital deployed over the year.
This performance stands in stark contrast to the general perception of SIPs as a tool that averages out market volatility over time. While that principle holds true for longer durations, a one-year window can sometimes capture a full market cycle downturn, leaving even disciplined SIP investors with paper losses.
The Role of Market Volatility and Sector Concentration
The primary driver behind these steep declines is the heightened volatility in equity markets over the past year. Global uncertainties, shifting interest rate expectations, and rich valuations in certain market segments have led to corrective phases. Funds with concentrated portfolios, particularly those focused on specific high-growth or thematic sectors, are often more susceptible to such sharp downturns.
For instance, sectors like technology, small-cap stocks, or certain new-age themes witnessed significant re-rating after a period of strong performance. Mutual fund schemes that had heavy exposure to these correcting sectors would naturally reflect that stress in their net asset values (NAV). The five funds in question are likely to have such concentrated exposures that amplified losses during the market correction.
Context for Long-Term Investors
Financial advisors consistently stress that equity SIPs are a long-term wealth-building strategy, typically with a horizon of five to seven years or more. A one-year period is considered very short-term in the equity investment landscape. Historical data shows that while short-term returns can be negative, extending the investment horizon significantly increases the probability of positive returns.
The appearance of such negative short-term returns is not necessarily a signal to stop SIPs. In fact, a downturn allows the SIP mechanism to buy more units at lower prices, which can enhance returns when the market eventually recovers. This concept, known as rupee-cost averaging, is a core benefit of the SIP approach during volatile phases.
What Should Investors Do Now?
Investors who find one of these funds in their portfolio should avoid making panic-driven decisions. The first step is to review the fund’s strategy and portfolio. Determine if the losses are due to a broad market decline affecting its category or a result of poor stock selection by the fund manager.
Comparing the fund’s performance against its benchmark index and its category peers over longer periods of three and five years is crucial. If the fund has consistently underperformed, it may warrant a review and a potential shift to a more resilient option. However, if the fund has a strong long-term track record and the investment thesis remains intact, staying the course is often the recommended strategy.
This news ultimately highlights a key investment principle: equity markets do not move in a straight line. Short-term volatility is the price of admission for potentially higher long-term returns. For SIP investors, discipline and a focus on the long-term horizon remain their most important tools.
