“Should I continue my SIP in HDFC Top 200 fund? I am worried about its dip in performance”. In this post, I would like to address this nagging question that many investors in the fund have.
Truth be told, this post is mainly a promo for a yet-to-be published update to the Mutual Fund SIP XIRR Tracker
The basic idea is, suppose we track the returns from our SIPs (XIRR) and that of the funds benchmark, month by month, we should be able to determine its performance. This is an alternative to the
I am bit partial to monthly XIRR tracking because it is a lot more ‘personal’. We can start tracking the fund in the month we set up our SIP and see how
it did it is doing.
I have now added multiple indices downloaded from Moneycontrol and a few total return indices which have to be manually updated from the S&P website. I shall post the updated version perhaps tomorrow.
For now, let us try and answer, Should I continue my SIP in HDFC Top 200 Fund?
This is the tracking data from 3rd April 2006. So it close to a ten-year SIP.
On the left, you have the XIRR data for the fund and benchmark, along with the green line which represents the duration of the SIP in years (in both plots). Please note the return is calculated after each instalment. So it is cumulative and not monthly performance.
On the right the cumulative percentage outperformance is tracked. Had the funds return dipped below its benchmark then the outperformance graph would have dipped.
I think the above performance is quite good.
To get some context, let us look at the performance of a dud fund: HSBC Equity:
Now for a fund which has done better than HDFC Top 200:
In terms of consistency, this is better than HDFC Top 200.
Hey wait a minute! The data above is a for a 10-year old SIP. What If I had started the SIP 5 years ago, say in Feb. 2011.
That is not a great sight, is it?! Verdict: Chuck it, if you this is not acceptable to you.
As mentioned above, HDFC Top 200 is just an excuse. My hope is that this kind of tracking will enable investors to take better decisions wrt their SIPs.
For the 5 year SIP, after 3 years, the data will look like this:
If this is not acceptable, one could have got out even then. However, expecting too much consistency may mean frequent churning so some moderation is necessary. The fortunes of the fund may turn around after we exit!
Faith in the fund management or intolerance to dips in performance are personalized ideas. When the market crashes, all top performers today may become duds, or medium performers may become worse. Personally, I believe in giving the fund management at least 3-5 years time to come good (beat the index by a significiant margin). If this does not happen, it is time to say goodbye and move on.
Why is the 10-year SIP data so much different than the 5-year SIP data? That is the nature of any volatile asset class. The performance will depend on the date of entry. The data for 12/15-year old SIPs would be even better.
What do you think? Is this method tracking and decision making justified?