SIP investment: Why you need to accept losses

are indeed low

To create wealth from stock markets, one should stay invested.

By Dhruv Desai

It is a good practice to remain invested in a falling market or better still, invest more to ensure great returns when market recovers. Majority of the investors would know this but unfortunately, majority of them fail to stick to this advice.

To create wealth from stock markets, one should stay invested. Likes of Warren Buffet, Rakesh Jhunjhunwala didn’t become rich overnight. They have seen all ups and down in the market and had managed to stay invested. In fact, they managed to invest when the market was at the lowest or at least the stock was trading cheap.

Stay invested
When we buy the stock for long term, we feel we will remain invested or invest more when the market falls. But do we actually do it? Let us take an example : Suppose we start systematic investment plan (SIP) of Rs 1,000 every month in HDFC Equity Fund from January 2007. I am taking this year since the market before that was roaring and that would convince many investors to start their investing in the stock market. From January 2007 to January 2008, the returns would be 29.68% where we would have invested Rs 13,000 and we would be getting a return of Rs 16,859. Then in October 2008, the investment would be worth Rs 13,370 from an investment of Rs 22,000. So we would be looking at a loss of 39.22%.

I doubt if any investors would still continue their SIP. I have seen many investors taking a loss and withdrawing from market stating stock market is not meant for them. In fact, if they had continued for another year, i.e., till December 24, 2009, the return would be Rs 53,533 and amount invested would be Rs 36,000 which would give us the return of 48.70%. In fact, if the investor would have continued the same SIP of Rs 1,000 every month, the return currently would be Rs 3,35,060 from an invested amount of Rs 1,43,000. That would give a return of 134% in a span of 10 years.

Investor’s confidence
Falling market tends to shake off investors’ confidence in the market. This is psychology, where fear prevails common sense. When the market is touching new highs, in spite of a warning from the back of our mind that the market is overbought, greed prevails and we find ourselves over committing in the market.

Investors should remove the notion from their mind that equity market will give high returns no matter what. We have seen where in a span of one year, the return was negative 39.22%. It is a volatile asset class and will remain so. Investors need to accept this. Investors who have seen high returns in past are less likely to be swayed by fear compare to investors who have seen low returns in past.

In rising markets, it is easy to say we will remain invested when the market falls but when it really falls, investors tend to crash out and take a loss rather than seeing it as an opportunity to invest more. They feel that the market will fall further and then they will invest. But it is impossible to time the market or catch low. In fact, even if they are getting cheaper stocks, they will wait more in fear that it will fall more.
My aim in this article is to highlight that one needs to accept losses too when doing their SIP. If your tolerance is low in the falling market, teach yourself to overcome your fears when things get bad. Otherwise, you will miss the opportunity of investing when prices indeed are cheap.


MSMEs: Loan losses high in sector, but banks continue to lend

MSMEs: Loan losses high in sector, but banks continue to lend

By: Shritama Bose | Published: November 6, 2018 3:48 AM

RBI data show defaults by MSMEs rose to 13.08% for PSBs at March-end this year against 12.56% last year.

On its part, the RBI had earlier this year eased norms for recognition of non-performing assets (NPAs) in the MSME segment.

Lending to smaller businesses is as fraught with risks as is lending to large companies, going by the level of non-performing assets (NPAs). However, despite this banks have not pulled back on credit to mid-sized and smaller companies. Delinquencies on account of micro, small and medium enterprises (MSME) rose to a high 13.08% for public sector banks (PSBs) at the end of March 2018, compared with 12.56% in March 2017, according to data sourced from the Reserve Bank of India (RBI).

However, outstanding loans to medium industries rose 3.3% year-on-year to Rs 1.05 lakh crore, data released by the RBI on October 31 reveals.

Again, credit to the micro and small industries, at Rs 3.64 lakh crore as on September 28, 2018, was more or less at same levels in the previous year.

The worsening in the quality of MSME credit was even more severe at banks under the prompt corrective action (PCA) framework. For these lenders, NPAs arising from the MSME portfolio stood at 15.74% at the end of March 2018, about a150 basis points higher than the level a year before that, documents reviewed by FE showed.

The government has been concerned that the flow of credit to the MSME sector is being restricted because 11 state-owned lenders are operating under the PCA (prompt corrective action) framework. This has become a contentious issue between the Centre and the RBI and is expected to be discussed at the next RBI board meeting on November 19.

On its part, the RBI had earlier this year eased norms for recognition of non-performing assets (NPAs) in the MSME segment.

On June 6, the central bank had extended the benefit of 180-days past due (dpd)-based classification of NPAs to all MSMEs. Earlier, banks and non-banking financial companies (NBFCs) were allowed to classify MSME exposures as NPA 180 days after the due date only if the firms were GST-compliant. This benefit for non-GST-compliant enterprises will be available only up to December 31, 2018.

In recent quarters, some banks have admitted that they are facing stress in their SME portfolio. In the June quarter of FY19, Kotak Mahindra Bank saw an increase in provisions against its portfolio of loans to small enterprises.

Manish Kothari, business head – corporate banking and SME – at the bank, had told FE, “We saw an impact for us in the trader segment and also in the valuation of collaterals becoming an issue at the time of liquidation. Traders who were dealing in products that were a little volatile, for example, commodities, have contributed to some stress. Similarly, businesses that dealt with customers who were subsequently selling ahead in cash were impacted by demonetisation.”

Last Friday, Prime Minister Narendra Modi announced a package for MSMEs. These include an online loan portal where loans up to `1 crore are to be granted in less than an hour, an extra 2% interest subvention for goods and services tax (GST)-registered MSMEs and more trade receivables on an e-discounting platform so as to ensure greater credit availability.

The share of delinquencies in private banks’ MSME portfolios rose to 2.61% at the end of March 2018 from 2.38% a year ago. For foreign banks, the share of delinquent MSME accounts actually fell to 2.5% at the end of FY18 from 3.32% at the end of FY17.