What is ‘synecdoche’? It refers to the practice of using a part of something that stands in for the whole thing. For example, ‘wheel’ is referred many times to represent car or automobile. Similarly, SIP is many times used by investors for investment in mutual funds. Although SIP is only one of the ways to invest in mutual fund schemes, it is inadvertently used to indicate investment in mutual funds. If we check on the internet for the use of this word, we find that SIP is more extensively searched than ‘mutual fund investment’ or ‘mutual fund’ itself. The graph below shows the Google search trends in India for the last three years ending October 2020.
When a word connotes so much about an asset, its return definitely will have a direct bearing on the attractiveness of the asset. The graph below shows the return distribution of SIPs in equity mutual funds over different periods. On an average, the SIP return in the last 3-5 year period has been around 6 per cent. If we exclude sectoral funds such as IT and pharmaceutical, the average returns will drop further.
The graph indicates that inflows slowed down in mutual funds as returns from SIPs started showing negative return. Besides, as the equity market started gaining, investors who had parked their funds 2017 witnessed some gain in their portfolio and hence started booking profits and exiting from the fund. October 2020 is the fourth consecutive month when we have seen net outflows from equity-dedicated mutual funds. For October the net outflow from the equity-dedicated funds was to the tune of Rs 2,724.95 crore. A monthly SIP inflow that was to the tune of Rs 8,641 crore in March 2020 slipped down to Rs 7,800 crore in October.
Dealing With Loss-Making SIP
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