Should You Stop Mutual Fund SIPs in Falling Markets?

Falling markets can be unsettling to investors. Say, one fine morning, you find that your portfolio value has dropped drastically. It can lead to panic and make you question whether you should stop your Systematic Investment Plan (SIP) altogether.

If you think that stopping your SIP is the best option in a falling market, then you are not alone. Many investors think like this. However, financial research and history suggest that staying invested in spite of market ups and downs is a wise choice and can be beneficial in the long run.

Here, we will talk about why stopping SIPs in a falling market may not be the best decision and why continuing them can help you achieve your long-term goals.

If you want expert advice on SIPs, you can connect with an expert Mutual Fund Distributor in Kolkata.

Market Timing is Difficult to Make

Many investors try to time the market. They stop SIPs when the market is falling and restart them when it recovers. However, it’s not a very wise practice because predicting market fluctuations is extremely difficult, even for seasoned investors. Also, this practice can lead to missed opportunities.

If you stop SIPs in a falling market, you can miss buying them at lower prices. Also, data from the past two decades shows that the market often recovers unpredictably. So, making precise buy or sell decisions is pretty difficult to make.

An expert Mutual Fund Agent can guide you through in detail why it is difficult to predict the market. But know that predicting the market with 100% accuracy is not possible. Otherwise, everyone would be doing it.

Time in the Market is More Important than Timing the Market

When investing in SIP, staying invested is more important than finding out when to invest. History shows that the market has always bounced back from crashes. So, long-term investors can always benefit from this trend.

One of the most significant benefits of investing in SIPs is rupee cost averaging. This strategy ensures that:

• You buy more units when the price is low and fewer units when the price is high.
• The average cost per unit is lower than a lump sum investment.
• Volatility is evened out over time.

For example, if you invest ₹10,000 monthly in the Nifty 50 and stay invested despite market downturns, you can expect significant gains in the long run. On the other hand, when you stop your SIP in falling markets, you can miss out on long-term gains.

Discipline is Key

Markets move in cycles, but emotional decision-making can lead to losses for investors. Many investors panic and stop their SIPs during market downturns, which results in losses. Many others try to invest large amounts during market highs, risking poor returns.

However, SIPs instill a regularity and system in your investment, which is needed utmostly. With SIPs, you do not have to be involved in active decision-making. Stay committed and disciplined in your investment plan, and do not react emotionally to short-term market fluctuations.

Ask any Mutual Fund Advisor in Kolkata, and he will agree on this.

Focus on Investment Goals, Not Market Conditions

Base your investment decision on your financial goals, not short-term market fluctuations. So, be clear about your goals. Ask yourself:

• Are your goals long-term?
• Would you need money in the near future, or can you wait for the market to recover

If your goals are long-term, stopping your SIP due to temporary market fluctuations is not a wise approach.

Long-Term Wealth Creation

History shows that equity markets have beaten inflation and provided high returns in the long run. SIPs help investors be in the market steadily during both highs and lows, making sure you accumulate wealth steadily.

For instance, if equity mutual funds deliver an average return of 12-15% per annum and you invest ₹10,000 per month for a period of 20 years, your corpus will grow to over ₹1 crore.

If you stop your SIP midway during downturns, you will miss out on the compounding effect of long-term investing.

Power of Compounding

Compounding is often called the “eighth wonder of the world” and not for nothing. When you stay invested, your money earns returns, and those returns generate more returns.

For example,

If you invest ₹5,000 monthly for 20 years at 12% interest, your money grows to ₹50 lakhs. If you stop investing for just 5 years, your money can be reduced by nearly ₹15 lakhs.

So, the key is to stay invested. The longer you stay invested, the more you benefit from compounding.

An expert Mutual Fund Agent can throw more light on the compounding power of SIPs.

SIPs are Affordable and Flexible

You can invest in SIP with as little as ₹500 per month. This is why SIPs are affordable and accessible to all income groups. SIPs also offer some flexibility.

• You can increase your SIP amount at any time.
• Some funds allow you to pause your SIP temporarily.
• You can switch funds if needed rather than stop completely.

Conclusion

Stopping your SIP in falling markets can be a costly mistake you don’t want to make. Just remember, markets run in cycles that can be unpredictable, even by professionals. So, staying invested is the key in SIPs despite temporary market fluctuations. In the long term, staying invested will bring you profitable returns.