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Five years is a fairly long time. During this period, you could climb a few rungs of the corporate ladder, upgrade from a hatchback to a luxury sedan or move into a bigger apartment. You could even generate substantial wealth by investing intelligently. However, as the past five years have shown, your investments could also earn absolutely nothing. Had you invested in a large-cap equity mutual fund at the beginning of 2008, your money would be worth roughly the same, or even less, today. Meanwhile, inflation has galloped at 8-10% per annum.

Some of those who had entered in early 2008, when the market had peaked, hung on to their investments, waiting patiently for their funds' NAV to recover. They got their chance when the market touched an all-time high in November 2010, only to slide down in 2011.
When the market recovered in 2012, many mutual fund investors redeemed their investments. Now that the indices are again at higher levels, many more small investors will be anxious to head for the exit. According to Computer Age Management Services (CAMS), nearly 11.5 lakh SIPs in equity funds have been terminated in the past year and another 4.93 lakh were not renewed. Although the SIP cancellations continued throughout the year, they gathered steam after the Sensex broke out decisively above the 17,000 level in August 2012. Today, the Sensex is hovering close to the 20,000 mark, which means that many small investors have lost out on an opportunity to create wealth.

Why stick to your SIP

As mentioned earlier, the investors who entered the equity market at the peak in early 2008 have hardly made any money. Many of those who invested lump sums are either sitting on losses or have barely recovered their principal. The SIP investors, however, have a different story to tell. Their investments have earned handsome returns. The Quantum Long Term Equity fund has been the best performing large- and mid-cap equity fund in the past five years. If you had invested 3 lakh in it at one go on 1 January 2008, your investment would have grown to 4.35 lakh, a return of 7.72%. However, if you had invested through monthly SIPs of 5,000, the value of your investment would be higher at 4.76 lakh, a return of 17.16%.
Stopping your SIP when the market is doing badly is perhaps the worst investing decision you can make. If you invest when the market is subdued, your SIP will buy more units because the prices are low. By terminating your SIP, you forfeit the opportunity to buy low. Over time, the purchase cost per unit is averaged out, which reduces the risk of investing a large amount at the wrong time and at a high price. However, SIPs are not a panacea for all stock-related risks. They only inculcate investing discipline and take away emotions from investing. SIPs may not always work in your favour. In some market conditions, lumpsum investments score over a staggered strategy. Even so, investors must remember that lump-sum investment is not an option that everyone has. For the small investor, who earns an income in monthly intervals, a lump-sum payment is not possible.

Managing your SIP

Initiation: Starting an SIP in a mutual fund is not complicated. It is even simpler if you are an existing investor. All you have to do is fill up the SIP form and give an ECS mandate to your bank to start the monthly payment. An SIP mandate takes time to start and you will have to pay the first instalment by cheque. If you are a new investor, you will have to fulfill the KYC formalities as well. Be sure to mention the desired tenure of the SIP investment in the application form.

Termination: If you want to discontinue your SIP, you will have to intimate your decision to both the fund company as well as your bank. You need to fill up a form, mentioning your folio number, bank account details, scheme name, SIP amount a n d the date from which the plan has to be stopped, and submit it to the fund house. If you want to stop the SIP temporarily, you can give a stop payment instruction to the bank for that period. However, keep in mind that if the SIP is stopped for more than two months, the fund house will terminate the SIP.

Renewal: If your SIP is nearing the end of its tenure, you have the option of extending it for a specified period of time. You will simply need to give details of the bank account from which the SIP instalment has to be debited and give a fresh ECS mandate to the bank. To ensure that there is no break, send the renewal instruction at least 30 working days before the last date. If the existing SIP expires, the renewal can be done by quoting the same folio number.

Monitor your SIP

Starting a SIP investment is only half the work done. Although an SIP should be for a long period to harness its full potential, don't continue with it indefinitely without checking on its performance. An SIP should not be taken as a 'fire and forget' investment. One needs to keep track and review periodically to ensure the realisation of goals.

While monitoring the fund, compare its performance over different time frames with other schemes in the same category. Only if the fund consistently underperforms the category should you consider switching over to another scheme. If the chosen vehicle is underperforming, shift to another, but stay committed to the market. Also, keep an eye out for any undesirable change in the fundamental attributes of your scheme, such as a rise in the expense ratio, revision in the investment mandate, investment style or changes in its stewardship.