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Edelweiss Insights When should you tell clients to exit/change their SIPs?

When should you tell clients to exit/change their SIPs?

Five scenarios when you should ask your clients to stop or change their SIPs.
Team Cafemutual Dec 11, 2018

While SIP is a long-term investment, here are a few scenarios where you can advise your clients to stop their SIP.

When your client achieves his goal

All financial plans make certain assumptions about the future - inflation, returns from investments etc. However, the future is uncertain and nobody knows how the performance of a fund will shape up. At times, goals may take a little longer than expected or may be reached much before your projected time- frame. However, in any case, you should advice your clients to move to safer asset classes such as debt funds when they are about to reach their financial goals. This will safeguard clients’ goals in case of any untoward market movement. 

When there is a fundamental change in the scheme

You must be analyzing a scheme carefully before recommending it to a client. However, sometimes funds change their asset allocation pattern (fundamental attributes) later. In this scenario, you need to evaluate whether the scheme still aligns with your clients’ risk appetite and investment goals. If there is a mismatch, you need to advise your clients to exit their SIP.

When there is a change in fund manager

A fund manager is a key driver of the fund’s performance. Each fund manager has her unique investment style. In case of a change in scheme fund manager, you need to evaluate the track record of the new fund manager to ascertain her stock picking ability. If there is lack of data or the fund manager’s investment style does not align with your client’s risk appetite, it is better to advise your clients to redeem their SIP and re-invest it elsewhere.

When the scheme consistently underperforms

If a scheme consistently delivers below average performance compared to the category or even benchmark then it is time to exit SIP. Sometimes even good schemes suffer from temporary underperformance due to market movement. However, long-term below average returns indicates fund manager’s inability to identify good stocks.

When your client’s goal changes

Major life events such as marriage, child’s birth and job change lead to a change in your client’s goals and risk taking ability. In such a scenario, it is necessary to evaluate all your client’s investments and exit the SIPs, which no longer align with his financial goals.    


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1 Comment
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