(Photo: iStock)
(Photo: iStock)

Why you should not stop your mutual fund SIP

  • Financial planners suggest continuing with your investments
  • Your mutual fund SIP investments should continue as you are getting more units for the same money

MUMBAI : The economic indicators are signalling a prolonged slowdown in the economy. The unemployment rate in India is at 6.1%, according to the Periodic Labour Force Survey (PLFS) of the National Sample Survey Office (NSSO). The liquidity crunch, NBFC crises and credit downgrades in the financial services sector have spurred some serious downturn in consumption. “There are evidences of a serious slowdown in consumption as reflected in sales of automobiles, FMCG, air travel, textiles and other discretionary products amid patchy monsoon," said Navneet Munot, chief investment officer, SBI Funds Management Pvt. Ltd.

The sale of passenger vehicles declined 21.56% in April-july 2019 from the same period last year, according to the Society of Indian Automobile Manufacturers (SIAM). Credit-rating agencies have projected a negative outlook for the overall growth rate in India.

Global factors have also played a huge role. “The dollar has been so strong meaning that the money flowing into emerging markets will slow down," said Manish Gunwani, Cioequity investments, Reliance Nippon Life Asset Management Ltd.

Two things that have been hit hard are industries and investment, said Sujan Hajra, chief economist and executive director, Anand Rathi Shares and Stock Brokers. In this time, analysts and financial planners suggest continuing with your investments. “The long-term structural growth story looks intact. However, the near-term outlook does not look favourable because of which we are seeing some volatility and outflow from the market," said Swarup Mohanty, chief executive officer, Mirae Asset Global Investments.

It is an opportune time for equity investors to accumulate. “Markets being low translate to an appropriate time to accumulate your equity investments to record strong returns. Your SIP investments should continue as you are getting more units for the same money," he said. With lump sum investments too, you are getting more value for your money during this time. It is not a bad time for new investors to enter either. “You should stick to asset allocation. A new investor can maintain 65:35 ratio between large- and mid-cap investments for equity investments," said Mohanty.

The large-cap investments can take care of the stability, while the mid-cap investment can take one or two kicks to the returns of your overall portfolio. However, you should consult with your financial planner or financial advisor before investing.

When it comes to the debt markets, there has been a significant rally and the money market yields have gone down. The 10-year government bond yield has fallen 11.02% since January and 6.3% since June according to data retrieved from the Bloomberg Terminal. “That is what happens. In a low inflationary environment and low growth period, debt funds investments do well. The reason is people want to move to safe investments and the demand for bonds pushes the prices up, leading to capital gains for debt fund investors," said Hajra.

He further said that it cannot be ruled out that the 10-year bond yield can breach 6% and the yield curve will go down.

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