Managing Risk Without Stopping Mutual Fund SIPs

Last Updated on

There seems to be a common perception that those who invest via SIPs are expected to do nothing else but invest systematically.  Thanks to certain “advisors” many investors believe that all one has to do to get “good returns” from equity is to continue a SIP through market ups and downs. Then it will all turn out okay in the end. This is an amusingly simplistic assumption.

Then are those who incorrectly believe that SIP is a method to minimize market risk, while all it does is buy at random market levels each month.  The accumulated corpus via SIP is exposed to the entire ups and downs of the market.

It is a no-brainer that the risk associated with a volatile asset class has to be managed. There seems to be too much emphasis on when the next investment is to be made, while the real risk lies elsewhere – the corpus.

A mutual fund SIP is hope, not a strategy! One cannot assume that a dull and boring SIP is all that is required to  achieve our long-term goals. Similarly, buying on dips alone  does not reduce the risk associated with the corpus.

After a few years of investing, the next monthly installment would become a fraction of the corpus accumulated. Should I worry about when to invest that fraction or should I worry about de-risking the corpus?

I would rather  keep investing systematically regardless of market levels and focus my attention on the amount accumulated in my equity portfolio.

In an earlier post, I had discussed some simple steps to de-risk our investment portfolio. Attention to asset allocation at all times is crucial.

Anytime there is a marked departure from my intended allocation in equity and fixed income, I rebalance the portfolio, again without regard to market levels or trend. This in my opinion, is a key risk reduction technique.

Some prefer to rebalance by following trends. That is, rebalance whenever index PE> 23 or something similar.  Relatively speaking, this is much better than using PE only to time the next investment.

Then there are others who adopt tactical asset allocation based on trends. That is, they will not hesitate to move from a portfolio with 70% equity to one with 30% equity if the PE spikes.

These are all risk reduction approaches.To assume that it is common sense that risk reduction results in return enhancement is a misconception. Rigorous studies have shown that the correlation between the two is not strong enough: Is it possible to time the market?

I am a big fan of continuous risk reduction (not just “close to the goal” as some fairy tales suggest). If we know how to measure risk with personalized benchmarks, it can be managed systematically without stopping our dull and boring SIPs.

Do share if you found this useful

Create a "from start to finish" financial plan with this unique open-source robo advisory software template


 Don't like ads but want to support the site? Subscribe to the ad-free newsletter! 
You will get the full post-ad-free delivered to your inbox for Rs. 3000 a year. Follow this link to read the terms and sign up! 


About the Author M Pattabiraman author of freefincal.comM. Pattabiraman is the co-author of two books: You can be rich too with goal based investing and Gamechanger. “Pattu” as he is popularly known, publishes unbiased, promotion-free research, analysis and holistic money management advice. Freefincal serves more than one million readers a year with numbers based analysis on topical issues and has more than a 100 free calculators on different aspects of insurance and investment analysis, including a robo advisory template for use by beginners. Contact information: freefincal {at} Gmail {dot} com He conducts free money management sessions for corporates (see details below). Previous engagements include World Bank, RBI, BHEL, Asian Paints.

Content Policy

Freefincal has original unbiased, conflict-of-interest-free,  topical reports, reviews, commentary and analysis on all aspects of personal finance like mutual funds, stocks, insurance etc. All guest authors and contributors to the site also do not have any conflict of interest. If you find the content useful, please consider supporting us by (1) sharing our articles and (2) disabling ad-blockers for our site if you are using one. No promotional content We do not accept sponsored posts and link exchange requests from content writers and agencies. This is our privacy policy Our website is non-profit in nature. The revenue from the advertisement will only be used for hosting charges, domain registration charges, specific plugins necessary for traffic growth and analytics services for search engine optimisation.
Want to conduct a sales-free "basics of money management" session in your office?
I conduct free seminars to employees or societies. Only the very basics and getting-started steps are discussed (no scary math):For example: How to define financial goals, how to save tax with a clear goal in mind; How to use a credit card for maximum benefit; When to buy a house; How to start investing; where to invest; how to invest for and after retirement etc. depending on the audience. If you are interested, you can contact me: freefincal [at] Gmail [dot] com. I can do the talk via conferencing software, so there is no cost for your company. If you want me to travel, you need to cover my airfare (I live in Chennai)

Connect with us on social media


Do check out my books


You Can Be Rich Too with Goal-Based Investing

You can be rich too with goal based investingMy first book is meant to help you ask the right questions, seek the right answers and since it comes with nine online calculators, you can also create custom solutions for your lifestyle! Get it now.  It is also available in Kindle format.
Gamechanger: Forget Startups, Join Corporate & Still Live the Rich Life You WantGamechanger: Forget Start-ups, Join Corporate and Still Live the Rich Life you wantMy second book is meant for young earners to get their basics right from day one! It will also help you travel to exotic places at low cost! Get it or gift it to a young earner

The ultimate guide to travel by Pranav Surya

Travel-Training-Kit-Cover This is a deep dive analysis into vacation planning, finding cheap flights, budget accommodation, what to do when travelling, how travelling slowly is better financially and psychologically with links to the web pages and hand-holding at every step.  Get the pdf for ₹199 (instant download)

Free Apps for your Android Phone

All calculators from our book, “You can be Rich Too” are now available on Google Play!
Install Financial Freedom App! (Google Play Store)
Install Freefincal Retirement Planner App! (Google Play Store)
Find out if you have enough to say "FU" to your employer (Google Play Store)

Blog Comment Policy

Your thoughts are vital to the health of this blog and are the driving force behind the analysis and calculators that you see here. We welcome criticism and differing opinions. I will do my very best to respond to all comments asap. Please do not include hyperlinks or email ids in the comment body. Such comments will be moderated and I reserve the right to delete the entire comment or remove the links before approving them.

3 Comments

  1. When should one do rebalancing. for example a new investor who has just started a year ago, for him corpus might not be that big. Is there any figure depending on corpus size that one shd do rebalancing

Leave a Reply

Your email address will not be published. Required fields are marked *