SHOULD YOU CONTINUE YOUR SIP?

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    Systematic Investment Plan

    Despite the disastrous impact of the COVID-19 pandemic, mutual fund investors have remained committed to their mutual funds. However, are investors doing the right thing by staying invested? Should they look for opportunities to exit and await an opening to return when the dust settles? Or would they be missing out on the opportunity of a lifetime by not investing more in the markets at these levels? Assuming that you know what is an SIP, let’s understand if you should continue with your Systematic Investment Plan (SIP).Following are four different scenarios that deserve different actions on your SIPs:

    Stay the course

    Continuing with your SIP investments means that your portfolio benefits from accumulating additional units when markets are down, bringing down your average cost of fund units.If your goals are same and you have passable time frame that will permit the investments to recover and fetch you the desired returns, then don’t fiddle with your SIP investments. Make sure to not change your investment strategy in days of uncertainty lest your financial situation has changed.

    Increase the amount

    Market levels and valuations are back to where they were a few years ago. But you should consider this only if you are sure of a steady and growing income, have an emergency fund and investible surpluses in place. Do not increase yourallocation of equity into your SIPs by diverting funds reserved for short-term goals. The safest way would be to stay with your current asset allocation and buy into the market to maintain it.

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    Pausing your SIPs

    If you find yourself in a situation where your income is likely to be at risk, then your first priority should be bracing up your emergency fund so that you can meet essential liabilities and expenses. You mightconsider pausing your SIPs in equity funds and move the asset allocation to liquid and other easily accessible investment options.

    If the decision to pause your investments gives you greater peace of mind, then it is worth it. Once the uncertainty passes, resume the SIP investments and look for methods to catch up on missed investments so that your goals are not affected.

    Redeeming investments
    You might consider redeeming investments in falling markets only during extreme situations. If you don’t need the funds, then there’s no need to redeem. This is because doing so would be converting a notional loss into a real loss and it is might become difficult to recover from this.

    However, if you are left with no option, then consider other options. Remember, to be able to reap benefits when markets improve, it is important to remain invested. Instead of focusing on the risks, assess if you have enough time for the economy and markets to rebound and let the power of compounding work for you.

    Individuals who invest in SIP, might consider using an SIP calculator to assess the future value of their investments. Happy investing!