Emotions lead people to make impulsive decisions not only in life in general but also in their mutual fund investment journey. The Indian equity market has been under intense volatility for the last few months. Benchmark indices Sensex and Nifty have lost about 12%, while mid- and small-cap indices have dived over 20% from their recent highs, forcing SIP investors to think about whether they should continue investing or stop.
Mutual fund SIPs are a popular investment tool, allowing investors to invest small amounts, and they are designed to benefit from market fluctuations through rupee-cost averaging. However, when markets turn volatile and extend the volatility for months, investors are bound to grow anxious — something we are witnessing currently. Experts, however, still suggest that one should not decide to discontinue SIPs based on the current market scenario. So leaving aside the current market meltdown, what could be five valid reasons to halt your SIP investment? Here they are:
1. Wrong way to see SIP, as it is for the long-term
Often, people start their SIP journey based on past performance, assuming that the funds they choose will generate the same returns they have observed. There’s nothing wrong in the approach as they get at least some clue about how the overall trend has been in the recent past and also in the long term. However, while evaluating this, they often overlook the fact that despite impressive returns over specific periods — such as 3 years, 5 years, or 10 years — markets have gone through cyclical falls and rises even during those times. Since investors analyze a fund’s performance at a given moment, these cyclical downturns may not be visible, leading them to focus only on the overall returns.
Also read: Should you stop SIPs in a volatile market and switch to fixed deposits?
If you are among those who entered the mutual fund SIP journey with this misconception that your investments in a fund will keep growing continuously and remain unaffected by market volatility in the short or long term, then SIP may not be the right investment strategy for you. This is because you may have overlooked the fundamental principle of SIP investments.
2. Wrong product – You entered a fund not meant for you
Sometimes, you may fully understand the nuances of SIP investment,
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