Who wouldn’t want to accumulate riches? People who want to accumulate money over time are increasingly turning to mutual fund investments made through Systematic investing Plans (SIPs), as awareness of investing avenues grows. But many investors also think about using the acquired corpus to cease SIPs at certain points in their lives and at times of need. They are unsure about whether to keep going with their SIP or stop completely. This article will examine this conundrum and point out a critical error that investors should never make.
Why stopping SIP is a bad Idea
Who wouldn’t want to accumulate riches?
People who want to accumulate money over time are increasingly turning to mutual fund investments made through Systematic investing Plans (SIPs), as awareness of investing avenues grows. But many investors also think about using the acquired corpus to cease SIPs at certain points in their lives and at times of need. They are unsure about whether to keep going with their SIP or stop completely. This article will examine this conundrum and point out a critical error that investors should never make.
The Enchantment of Regularity
Investors frequently downplay the need of consistency and discipline in an effective investing plan. If ingested correctly, they mold the financial path and make it simpler and hassle-free to proceed. What could be a more effective catalyst for the effect than Mutual Fund SIPs? Investors can gradually increase their wealth with SIPs by making timely contributions. Remaining invested in SIP even in volatile periods allows investors to take advantage of rupee-cost averaging, which allows them to purchase more units at low prices and fewer units at high prices. Long-term returns can be improved and market volatility can be mitigated with this method.
The Price of Market Timing
Timing the market by halting SIPs during down markets and restarting them during bull markets is a dangerous strategy. Market timing requires the ability to predict market movements accurately, something that even seasoned investors may find difficult to achieve on a regular basis. Staying involved generally involves taking advantage of potential returns because periods of extreme decline typically precede the best-performing days.
For instance, 20 years ago, two friends, Saurav and Akash, began a systematic investment plan (SIP) of Rs. 10,000 in equities mutual funds. In the face of the erratic market, Saurav continued his regular SIP investment for 20 years, but Akash panicked and stopped his investment for four years before restarting it. By March 2024, Saurav had amassed Rs. 1 crore*, whereas Akash had amassed Rs. 82.26 lakh*. Therefore, to increase your money over time, don’t discontinue your SIP.
Avoiding Mistakes
The most common error made by investors with their mutual fund SIP is to stop it altogether amid short-term market swings. While anxiety is understandable at these times, following the plan and the SIP will eventually lead to greater results. Rather of concentrating on cyclical fluctuations, investors should consider long-term financial requirements and the impact of compounding.
When to Evaluate Again
While it’s crucial to refrain from making snap decisions, there are valid reasons to periodically reevaluate the SIP method. When anything happens, such as a change in income or financial needs, or when the market conditions shift, one should think about modifying their investment approach. Investors should consult their mutual fund distributors during such life events in order to weigh their options and make an informed decision that meets their needs.
Therefore, over time, consistency and discipline will change everything in the realm of investments and finances. While market volatility may make one want to give up on mutual fund investing, sticking with it might yield much superior long-term returns. Therefore, instead of giving up on SIP in response to brief changes, focus on your financial needs and the compounding effect that SIP provides.
