How to deal with loss-making SIPs

Jai and Veeru bumped into their college friend Gabbar after many years. As they made their way to the dhaba for a paratha lunch, Gabbar kicked off a chat. Gabbar: Jai and Veeru, so happy to meet you two, yaar. I hear you both are wonderful investors now and I have something to ask you. Jai: Oh! We are not high net-worth investors like you but tell us what it is about. Gabbar: It's about my SIPs. Earlier I used to keep buying and selling stocks based on my brokers' tips. I couldn't even concentrate on my work as I watched the market all the time. So in 2017, I decided to give up this direct investing and invest only through SIPs in mutual funds. But they have let me down badly. Veeru: Why do you say so? Gabbar: Well, people told me that SIPs will protect my portfolio from losses. I have Rs90,000 to invest in equities every month. I have monthly SIPs running in five small-cap funds and all of them are showing negative returns of 15-19 per cent for the last one year. If I am going to make losses only, why bother with SIPs! I can make losses myself! Veeru: Ha ha! Be happy you moved to SIPs, Gabbar. Some of those small-cap stocks which were tipped as hot favourites are down by 70-80 per cent in the last seven months. Your fund investments are only down by 15-19 per cent. Jai: But jokes apart, someone has given you a completely wrong picture about SIPs, Gabbar. Who told you SIPs can't lose money? What SIPs do is to spread out your investment over time so that you don't end up investing everything at a market high. But while SIPs spread out your investments (and thus risk of investing at a bad time), they don't completely remove risk from equity investing. If the market falls below the levels at which your SIPs were invested, your current NAV will be lower than the

This article was originally published on September 18, 2018.