Why you should not give up on your SIP Investments in a Tough Market
Cautious investors may give up on their equity mutual funds when they foresee the stock market becoming sluggish. They decide to divert the funds to debt investments, believing it to be a safer choice.
Cautious investors may give up on their equity mutual funds when they foresee the stock market becoming sluggish. They decide to divert the funds to debt investments, believing it to be a safer choice. But mutual fund advisors and financial planners suggest otherwise. Smart investors stick to equity investing more so during tough times.
Volatility and the Investor
Volatality and downturn makes investors nervous. Unpredictability is synonymous with the stock market. For instance, in the last financial year, Sensex fell by almost 900 points in one day. During such times It is not uncommon for mutual fund investors to consider discontinuing of SIP investments. This is neither advisable nor smart. Investors need to conitinue SIPs and plan for long term returns.
Every time there is a market correction investors face this dilemma (of discontinuing of sip and maybe redeeming investments). They stop their SIPs and either divert the funds to fixed income (debt funds) or redeem them.
So, what is the ideal thing to do in such a market situation? Here are a few tips :
- When SIP’s underperformed due to a market plunge, it is not a reason to stop investing.
- Investors must continue SIPs more so after a dip in the market. If possible increase SIP investments.
- The ideal time frame of 5-10 years must be followed for SIP investments during which equity markets may go through a roller coaster ride, but investors will stand to gain.
- Do not try to time the market.
Typically, it is premature to judge a SIP investment in a year or two. 5-7 years is the minimum period to analyse the performance of the equity fund.
When to top-up or increase SIP investments ?
- If you are a salaried employee, the period during your annual raise will be a good time to top-up your SIP investment. Your income and investment will grow hand in hand proportionately.
- When the markets are in a correction phase, it will be an ideal situation to add a lump-sum amount to your already existing SIP investment. Or even increase the SIP amounts.
