A sigh of relief! Finally, your SIP is again looking positive. But what went wrong in April to June 2020? Why was your 1 year, 3 Year, 5 Year, and even 10-year SIP negative? And Negative SIP means –
Many investors lost faith in MFs and resolved to withdraw and started putting money in Bank FDs or other dead assets. Many started trading in stock markets.
Why did a time tested concept of SIP faced so much suspicion?
REASON: You were standing in a ditch during the dark night and all you could see was black – Nothing!
It depends on the VIEW…
Let me explain…
When Ashoka (or Asoka – As in movie starring SRK), won the war of Kalinga… his army leaders saw victory, land & rule. But he saw the pain, blood bath & agony which lead to his transformation from a prince to a follower of Buddha.
Similarly, when Kuarwas & Pandavas army faced each other in Kurukshetra on day 1, Arjuna could not lift his weapons as he saw his brothers, elder & relatives. Krishna his mentor made him see the enemy, the Adharma in the opponent. When clarity prevailed Arjuna became unstoppable in the battle that lasted 18 days.
Lesson – there is always a connection between What You See (Feel, Hear, Read & Experience) & What You Understand.
When you are in a bad mood, you don’t like rain. You don’t like traffic. Spouse seems to be demanding. Kids look bossy.
This is what happened when you look at your SIP on a bad day or period in which equity is facing a SLUMP.
Let me explain the reason for Negative SIP you with some data
This is how the SIP in benchmarks looked in April 2020 (We went in lockdown on 23 March 2020 and markets started correcting and saw a decline of around 40%).
Nifty Midcap 100 TRI
What you should see?
When times were good in Jan 2020, your one year SIP was showing a return 13.11% & similarly for 3, 5, 7, & 10 years the returns were POSITIVE 1.39%, 6.11%, 10.87% & 11.34%.
What you saw – gave you comfort.
Then comes COVID Period – The period of Negative SIP
When times changed in March 2020, for your SIP of 1, 3, 5, 7, & 10 years the returns were NEGATIVE 51.01%, 24.95%, 11.05%, 1.76% & +2.89%.
You lost your patience here!
An almost similar story happened in other indices as well.
Nifty 200 TRI
Nifty 500 TRI
I have only shown SIP in Indexes. In actual the returns are more positive (& negative in actual funds).
Suddenly your mind started seeing negative things. The media claimed that bad days are ahead. CORONA everywhere… Pundits on TV said – it is worse than Plague Epidemic & The Great Depression.
Biases You Faced during the phase of Negative SIP
Recency Bias – What is happening in recent stays in your memory and impact your further decisions.
Extrapolation Bias – You extrapolate the existing events & news, make it big because of your inner fear and reactiveness. You get extra negative.
Ostrich Effect – You don’t take that pain to question. You do not talk to advisors or the right people who can guide you. Instead of turning the bad phase in opportunity, you shun away. Close SIPs. Withdraw money & disturb entire goal planning.
Outcome Bias – This is a bias when decisions are made based on the outcome of some previous event. So when you lost money in some tips & stock trading scam or land scheme, those memories haunt. You paint all asset classes with the same brush.
Hope
Just see the same 1, 3, 5 & 10 Years returns from July… back to normal again! So negative returns were the result of the position from where you were looking past returns.
In case you held your nerves my congratulations… you not only made your returns better. You enriched yourself with experience. You accumulated units at a low cost, which will benefit in your returns. You also accumulated more units compared to investors who stopped SIP. This will fast pace your goals achievability.
Those who could not… you will be better next time I hope & I believe.
And if you are still doubtful and consider this piece as a sales pitch… Get Well Soon! Because I waited 5-6 months for the numbers (actual data) to come out and write this.
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