Why you should not stop SIP

Mutual Funds

Why you should not stop SIP

Why you should not stop SIP is considering your long term goals and recent market fluctuation may be taken care by regular investment in the same funds for a long term. Are you looking at your funds’ one-year returns and wondering if something is wrong? The last you saw the returns chart, say December 31, 2017, most equity funds delivered 25% plus one-year returns. You see your funds’ one-year chart now and they are in low single digits or even negative.

How can the return picture change so dramatically in six months? – you ask yourself and suspect your fund of slipping down the returns chart.

Now, this is often a trigger for many of you to conclude that your fund is not doing okay and stop the SIPs. And there begins your woes.

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*Investment in Mutual Funds SIP are subject to market returns, Please read offer documents fully.

Stopping SIPs, unless you know your fund is a definite underperformer, can harm your portfolio. That is to putting it mildly. If you were saving for a goal, then stopping SIPs can be short of being disastrous for the following reasons:

  • One, you lose out on the best periods to average your costs, when the NAV is trending down
  • Two, you would stop instalments thereby upsetting the whole time frame over which you intended to save for the goal

In fact, between Jan 2018 and now, ABSL Small Cap fund has shed about 15% of its NAV. Don’t be shocked. The Nifty Small cap Index has lost 22%.Your fund SIP would be quietly averaging at lower levels now. Disrupting it would mean losing out the potential upside. The stock market, with its currently moderate earnings fundamentals and economic growth besides an upcoming election year, is likely to see enhanced volatility. That means markets and NAVs can see-saw.

Next thing why you should not stop SIP is 3-4 months is too short a period to conclude a fund is poor even if it under performs its index or category average. Temporary blips are bound to happen if a call or two goes wrong (and it is bound to, for any fund). That should not cause panic in a long-term wealth creating process.

SIP, as a method of investment, has proven to safeguard you from market falls by taking advantage of such falls. What you should be more concerned about is if your time period and risk appetite are in line with your choice of equity instrument. With that being the basis of your investment decision, refraining from investing because the market is falling will only be counterproductive.

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Rather, you should take advantage of the market fall and prop up your returns by making more investments or increasing your SIP.

If you are still confused, request to get a quick reassurance about market fundamentals by speaking to your advisor, rather than abruptly stopping SIP.

The moral is that, don’t let the market spook you into getting off your investment track. A SIP will work in all market cycles. It will work exceptionally well when the market sees a correction. There is only one scenario when a SIP won’t work, that is when you stop it.

 

*Investment in Mutual Funds SIP are subject to market returns, Please read offer documents fully.

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