What one should do after the SIP term completes?

Sheetal Tigadoli asks a very interesting question in a comment here.

Hi, I’ve an interesting question, What one should do after the SIP term completes? What all things should we consider to either redeem or renew SIP term or just stay put?

I completely agree with your view that it is quite an interesting question.

Staying put is never an option and you should always be active with your investments. It does not necessarily mean you should be tracking them every day but at least once every quarter is a must though I prefer once every month.

When should one redeem?

Normally we do a SIP with an investment objective and as your SIP term is over, see how are you doing with your objective and check for your need for funds.

Do you need money immediately and if not then when would you need it?

If the answer to the above question is anywhere between a few months to one year, you should let the profit rides for a few weeks to a few months and opt for a systematic withdrawal plan.

When to Renew / Switch?

If there is no need for funds in the immediate future, I don’t see a reason to redeem but you should consider either renew or switch to better funds.

So how to decide if we should renew the SIP term in the same fund or opt for a different fund and start a fresh SIP.

I try to keep things really simple based on ROI.

Based on Return On Investment

We all want an averagely good returns for our investment. So I keep a benchmark which is quite achievable. If a fund I already invested is performing

1. 15 to 20% average annual returns, I remain invested and may even consider a SIP term renewal.
2. Below 10%, I compare other funds in the same category to see if I can switch to better performing funds in the same category.
3. Between 10% to 15% and I may remain invested but may not renew my SIP if I see other funds performing much better (the stress is on much).

Note: Returns I check are based on at least 3 years performances.

Note2: 14.2% does not mean it is in the third category and 15.1% does not mean it is in first. These are only ballpark numbers.

Based on Balance of Portfolio

I personally don’t prefer diversified investment and love more focused investments but re-balancing of the portfolio can be an option for not renewing the SIP term and opt for a different fund.

You may have SIP in debt as well as in equity fund and as your equity fund performed, your portfolio is more skewed towards equity and so you can renew but reduced SIP amount in equity based fund if you want a more balance portfolio.

Similar thing can be said about large cap and mid cap fund where one of the fund performed better over other making your portfolio skewed. To keep it more balanced, you can opt to increase SIP amount in less performing fund over the one that has already performed to keep things balanced.