Broke SIP for poor MF return? This is why you may regret it

By Harsh Gahlaut

What is money, if not a means to an end? While you may be quick to dismiss this rhetorical question as banal and philosophical, the past two decades in this industry has taught me one thing – your personal understanding of this rather modest concept will affect your long-term investing success a lot more than you can imagine.

The moment money no longer remains a means to an end – say, a way to fund a comfortable retirement, or a ticket to a stellar education for your child; it becomes a scoring mechanism and a proxy measure of your overall happiness. And that is when it all begins to go awry for you, because notional profits and notional losses will keep you on a perennial seesaw of emotions that will drive your day to day investment decisions.

I say this in the context of the tried and tested concept of financial plan-led, goal-based investing. When we begin to plan our future goals, we often come face to face with the big bad wolf called inflation for the first time. And that is also when we truly begin to comprehend the futility of riskless long-term investing and its corollary; the inescapable need for adding growth assets to our portfolios.

Many of us start off our mutual fund SIPs with the theoretical acceptance of the volatility that is intrinsic to equities as an asset class, and of the fact that we cannot simply escape to the haven of fixed deposits and bonds if we intend to counter inflation and build an adequate corpus for our long-term goals.

Unfortunately, disappointing market cycles such as the extended one that we have witnessed since 2018 tend to chip away at our initial perspective. We forget why we decided to commit our long-term savings into growth assets, and all sorts of behavioural biases start coming to the fore. Should I remain invested or exit? Should I wait for the Covid crisis to pass before getting back into risky assets? Should I stop my SIPs for now and restart them when the economy gets better? Would I have just been better off in a bank fixed deposit? These are just a few of the niggling questions that begin to trouble even the most patient and rational of investors.

I’d like to offer you a different perspective that you can use to reframe the situation at hand. Perhaps you have patiently ploughed in money for your future goals through SIPs since 2018, only to be sitting on flat or negative absolute returns after three long years. Undoubtedly, this is an unenviable situation to be in. But you must understand two things: first, ‘savings success’ does not equal ‘returns generation’. Even if you have put away Rs 5 lakh towards your child’s higher studies over these three years, and your fund value is Rs 4.9 lakh now, you are still infinitely better off than what you would have been had you never started. The day you decided to set a financial goal and start saving for it with a structured action plan, you went ahead of 99 per cent of the pack. When the time comes, you will need to borrow less, your interest outgo will be lower, you won’t have to break your retirement savings to pay for a decent education for your child, and you will have exponentially lowered financial stress than your goalless counterpart.

That brings me to my second point. History tells us with absolute certainty that if there is one constant in financial markets, it is mean reversion. In other words, what goes up, comes down – and what goes down, comes up. The only dampener in the equation is this – it is quite impossible to predict when exogenous shocks such as Covid-19 will unsettle the bulls or when illogical, liquidity-fuelled market rises will befuddle the bears.

So, while it is frustrating to see growthless years roll by, it would be a terrible folly to take your eyes off the ball and exit your investments when your goals are still years – or decades – away. It can be said with an extremely high degree of confidence that in the journey towards your long-term goals, many more such downcycles will appear, and will be followed by equally furious rises.

Instead of calculating the opportunity loss of not having invested in a low risk asset, pause for a moment and consider why you chose a growth asset in the first place. Congratulate yourself for how far you have come from when you started. The moment you start framing the situation in this manner and measuring your success in terms of your percentage accumulation towards your goals instead of percentage returns on your investments, you’ll have made a quantum leap in the direction of being a more successful investor.

In tough market conditions, the resilience to continue on your journey to financial freedom comes from acknowledging how far you have come. Unfortunately, this becomes impossible without a financial plan and a goal-based investing approach.

Here is a concluding thought. It takes just one good year to wash away several poor ones. Remember, the last thing you would want to be doing when that happens is sitting on the fence.

The best thing you can do in low-return phases is to keep accumulating investments with discipline. Good times will most certainly come; and when they do, you must ensure that you earn returns on a large corpus and not a small one. That will make all the difference towards the achievement of your financial goals.

(Harsh Gahlaut is the Founder & CEO of FinEdge. Views are his own)