Worried about Negative SIP XIRR? Should I Invest More or Do Something Else?

Ans: Please continue

Ans: Hello and thanks for writing to me. I am assuming that you are investing for the long term for wealth creation and are fine with taking risks.

For that goal, the fund selection is fine, but you can consider reducing the investment in the NIFTY 50 passive to Rs.5,000 and start an SIP of Rs.5,000 in a multi cap fund.

Do note that periodic rebalancing is essential to ensure that you are on the right track. Stepping up your SIP's every year will help you create a larger corpus.

Ans: Hello and thanks for writing to me. It is good that you have the discipline to start and continue your SIP 7 years, thru multiple market cycles.

Please state your objectives, risk appetite for me to make a recommendation.

Ans: Your Current SIP Portfolio
You have been investing ?3,000 monthly across various SIPs for a year. Your chosen funds focus on technology, healthcare, commodities, and other sectors. This shows a good start towards disciplined investing.

Concentration in Technology Sector
A significant portion of your investments is in technology-focused funds. Technology funds can offer high returns but also come with high volatility.

Sector-Specific Funds
You also have investments in healthcare, commodities, and logistics funds. Sector-specific funds can be very volatile as they depend on the performance of their respective sectors.

Diversification
Your portfolio lacks diversification. Investing too much in a single sector increases risk. Diversification helps in balancing risk and returns.

Importance of Broad Market Exposure
Diversifying across different market segments reduces risk. Balanced exposure to large-cap, mid-cap, and small-cap funds is crucial. This strategy ensures you are not overly dependent on one sector's performance.

Adding Stability with Debt Funds
Including debt funds can provide stability. Debt funds offer regular returns and reduce the overall risk in your portfolio. This balance is vital for long-term growth.

Benefits of Actively Managed Funds
Actively managed funds can outperform index funds due to professional management. Fund managers actively select stocks to maximize returns. This can be advantageous, especially in volatile markets.

Disadvantages of Index Funds
Index funds mirror the market index and do not aim to outperform it. They lack flexibility in changing market conditions. Actively managed funds, on the other hand, adapt to market changes, providing better growth potential.

Direct Funds vs. Regular Funds
Direct funds have lower expense ratios but require thorough research and monitoring. Regular funds, through a Mutual Fund Distributor (MFD) with a Certified Financial Planner (CFP), offer professional guidance and management. This can be valuable for optimizing returns and managing risks effectively.

Suggested Modifications
Reduce Sector-Specific Overweight

Reduce the number of technology and sector-specific funds. This will help in balancing the portfolio and reducing sector-specific risks.

Increase Broad Market Exposure

Allocate more funds to diversified equity funds. Large-cap and multi-cap funds provide stable returns and reduce overall risk.

Include Debt Funds for Stability

Add debt or hybrid funds to your portfolio. This will provide regular returns and reduce the volatility of your overall investment.

Suggested Allocation
Technology Funds: Choose one or two funds to maintain some exposure but reduce concentration.
Broad Market Funds: Increase investment in large-cap and multi-cap funds for stable growth.
Debt Funds: Allocate a portion to debt funds for stability.
Regular Monitoring and Review
Monitor your investments regularly. Review fund performance annually and adjust your portfolio based on your financial goals and market conditions.

Conclusion
Your dedication to investing through SIPs is commendable. With a few adjustments, you can achieve a balanced and diversified portfolio. This will help you meet your long-term financial goals with reduced risk.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in

Ans: Your question reflects discipline and awareness. Investing Rs. 1 lakh in this fund and continuing SIPs is a good sign. Many investors stop when returns are low. You have chosen to review and assess. That shows maturity. Well done.

Now let’s look at this investment from a 360-degree lens.

» Fund Performance vs. Your XIRR

– Your XIRR of 6.97% is below expectations.
– PSU-themed funds have short bursts of performance.
– Long stretches may show average or low returns.
– Timing matters in PSU funds. You may have entered late.
– Or exited too early from earlier investments.
– PSUs perform well in some economic cycles.
– But they don’t have consistent growth always.
– A 6.97% return is not alarming but needs a review.
– It's still higher than traditional FDs or savings.
– But lower than diversified equity mutual funds.
– Review the investment horizon and goal linked to this SIP.

» Understanding PSU-Focused Funds

– PSU funds invest mostly in government-owned companies.
– These include sectors like oil, gas, power, banks.
– These sectors are often regulated and slow moving.
– Growth is dependent on government reforms and capex.
– Not always driven by innovation or disruption.
– Hence, these funds may underperform broader markets.
– You may see volatility and cyclical growth patterns.
– PSU stocks may give short-term rallies.
– But long-term consistency may not match other funds.

» What Might Have Gone Wrong?

– Possibly entered during a PSU rally phase.
– SIP works better in long-term consistent performers.
– PSU funds don’t follow that structure always.
– They may move sideways for years.
– And suddenly jump when reforms come.
– Hence SIPs here need timing awareness.
– You may also be over-exposed to one theme.
– A thematic fund should be less than 10-15% of portfolio.
– Have you done that allocation? Important to check.

» Should You Continue the SIP?

– Continuing is okay if this is a satellite fund.
– If PSU exposure is below 10% of your total equity, continue.
– If PSU fund is your only SIP, it’s risky.
– Then you must diversify to more consistent categories.
– A core portfolio should be based on diversified funds.
– You may stop fresh SIPs and retain existing units.
– Or shift SIP amount to diversified equity funds.
– This will balance out your portfolio return.

» Should You Increase the SIP Amount?

– Not in this fund. Not at this stage.
– Increasing exposure to a fund with 6.97% XIRR is unwise.
– First, check why performance is low.
– Then evaluate where your current SIPs are going.
– If core funds are lacking, shift increased SIP amount there.
– SIP increase must go to well-diversified categories.
– Large and flexi-cap funds offer more stability.
– You can later re-enter PSU when momentum builds up.
– But now is not the time to increase this SIP.

» What Should You Do Instead?

– Pause future SIPs in PSU fund.
– Do not redeem existing corpus yet.
– Hold current Rs. 1 lakh till PSU cycle improves.
– Redirect Rs. 5,000 SIP into more reliable funds.
– Use diversified flexi-cap or large-mid cap categories.
– These categories offer better long-term consistency.
– Monitor the PSU fund’s sectoral exposure regularly.
– If it becomes concentrated in a few sectors, be cautious.

» What About Your Overall Allocation?

– Check how many SIPs you run across funds.
– Is PSU fund more than 15% of your equity SIPs?
– If yes, reduce exposure.
– If no, keeping it as a satellite fund is fine.
– Diversify SIPs across styles like flexi-cap, mid-cap.
– Ensure you have at least 4-5 different fund categories.
– Don’t cluster SIPs into thematic styles only.

» Other Aspects to Consider Before Switch

– Taxation comes in if you redeem this fund.
– For equity funds, LTCG above Rs. 1.25 lakh is taxed at 12.5%.
– Short-term gains are taxed at 20% now.
– Check if your Rs. 1 lakh is short term or long term.
– If it’s short term, wait till it becomes long-term.
– This saves tax and gives time for performance recovery.
– If already long term and still low return, switch slowly.

» Role of Asset Allocation

– SIPs alone don’t create returns.
– Asset allocation does.
– Maintain 60–75% in equity depending on your goal.
– Keep 20–30% in debt for stability.
– Use PPF, EPF, and debt funds for fixed returns.
– If you already have good exposure to debt, focus on equity.
– But make sure it is well-diversified equity.
– Don’t keep more than 20% in any one category or theme.

» Avoid Chasing Past Performance

– Don’t shift to a fund just because it’s doing well now.
– Past 1-year or 3-year returns don’t assure future results.
– Select funds based on consistency over 5+ years.
– Review risk-adjusted returns and fund manager history.
– PSU funds don’t always top the charts long term.
– So limit exposure and stay diversified.

» Avoid These Mistakes

– Don’t redeem in panic. Wait if possible.
– Don’t switch entire amount in one go.
– Don’t add more to underperformers without review.
– Don’t increase SIPs in sector funds unless you understand the sector deeply.
– Don’t get carried away by past 1-year performance alone.
– Don’t neglect rebalancing. Do it once a year.

» When Will PSU Funds Perform Again?

– When government boosts infrastructure spend.
– When interest rates stabilize or reduce.
– When global markets show PSU sector preference.
– When reforms trigger valuation re-rating.
– Till then, they may stay flat or give low returns.
– Keep track of macro signals to understand the cycle.
– But don’t time the market too aggressively.

» Should You Exit This Fund Completely?

– No. Full exit is not needed now.
– If amount is small, retain and monitor.
– If corpus becomes too large with poor return, consider phased switch.
– Use STP (Systematic Transfer Plan) to move to better funds.
– Exit over 6–12 months in parts to manage taxation and timing.

» Final Insights

– Good job tracking XIRR. Most ignore this.
– 6.97% XIRR shows you’re being alert.
– But fund choice may need review.
– PSU funds are thematic and cyclical.
– Treat them as satellite investments, not core.
– Don’t increase SIP here.
– Reallocate SIPs to better-diversified equity funds.
– Keep current Rs. 1 lakh investment and monitor.
– Use annual reviews to check fund consistency.
– Focus more on asset mix than fund returns alone.
– A Certified Financial Planner can help review your entire portfolio for balance.
– Ensure goals, horizon, and risk match with your SIPs.

Best Regards,
K. Ramalingam, MBA, CFP,
Chief Financial Planner,
www.holisticinvestment.in

https://www.youtube.com/@HolisticInvestment