Should I stop my SIPs in falling markets?
Monthly SIP inflows in mutual fund have managed to remain steady even during the recent volatile market condition. However, experts recommend that if such volatility and correction persist longer in the equity markets, it will have a significant impact on the investors. 2019 has been the year where investment in debt funds and Gold have generated better returns for the investors than the equities. Given the fact that the market volatility is a concern, investors may stop their SIPs in the falling markets, and shift to other asset classes, including debt and Gold.
While the negative returns in your portfolio might be a big reason for you to discontinue your SIPs and even redeem your investments, here are six reasons why not to discontinue SIP in mutual funds:
1. Continuing to Invest towards Financial Goals
If you are discontinuing your SIP, you are effectively stopping mid-way in pursuit of your financial goals. Instead, you must continue to invest to accomplish your financial goals through SIP by making regular investments every month. After all, small drops of water make an ocean.
2. Opportunity to Invest at Lower Valuations
One of the greatest investors of our times, Warren Buffet said, “Be fearful when others are greedy, but be greedy when others are fearful.” Just when the markets are falling, this may be an excellent time to expand your portfolio and invest at lower valuations. Taking a contrarian investing approach during the market fall may be hugely rewarding for your financial future. You may get more units of mutual funds against similar investment during the market fall. As you allow more time to your investments and stay invested, you get the benefit of compounding interest. However, in case you stop your SIP when the market is falling, you will lose out the benefit of compounding for your fresh investments.
3. Benefiting from Potential of Higher Returns –
Given the historical performance of equity markets, investors have been handsomely rewarded over the long term with S&P BSE Sensex generating around 16% CAGR for the investors over the last 40 years. (Source: MFI Explorer) Some periods may have seen lower returns, while the other periods may have witnessed exceptionally higher returns. As such, stopping SIPs during the market correction, you will miss out on the potential of higher returns during the market rallies.
4. Professional Fund Management –
When you invest in mutual funds, your money is invested by professional fund managers, duly backed by a strong team with financial and analytical insights. As such, your investment may be expected to be made in quality stocks with high growth potential amidst market volatility. By discontinuing your SIP and diverting your savings to traditional investment products, you will miss out on taking advantage of professional fund management for your savings.
Seeing your portfolio with negative returns may not be a pleasant feeling at present but continuing to invest through SIP may be a great way to tide over the market volatility.
Disclaimer: The chart/information shared above is for illustrative purposes only and should not be construed as advise. The above is to illustrate the concept of asset allocation. There is also a possibility of the expected event not happening or some other unforeseen event that may affect the future performance of asset class. Investors are requested to note that there are various factors domestic and global that can have impact on performance of the asset class mentioned in the article. Information given is available in public domain.