One moment, the market is enjoying the all-time high. And, the very next moment, we are in the spasms of a market correction. Although history is an indication to the bulls and bearish market cycles providing information about how long crashes have lasted in the past, no one gets a notice announcing the nature, time, and probable extent of future dips in the market. This results in several investors pausing or even stopping their SIP investments at the slightest hints of market volatility. However, is it the right thing to do? Should you stop your SIP investments. This article aims to answer the same. But before, we dive into that let’s understand why one might stop their SIP (Systematic Investment Plan) in mutual fund investments.
Following are some of the reasons why an investor might halt SIP investments or even stop them:
- To wait for the bullish market to cool down
- The fear of losing in a bear market cycle
- To purchase a house
Should you pause your SIP investments during stock market volatility?
If you are wondering whether you should pause your SIP investments, now is perhapsnot a good time. Pausing your SIP investments during a market downturn is probably the worst mistake you can commit as an investor. It upheavals the sole purpose of SIP mutual funds by rebutting the investor the opportunity of accruingabundance of mutual fund units when the prices slash. Having said that, it’s understandable that you are worried and scared by the market volatility. However, what you might miss out on is the opportunity offered to you. Let’s understand this better.
A market downturn can be the perfect time for an investor as SIPs work in their favour. Why, you may wonder. SIPs work at their maximum potential in a shifting market situation. As the stock market hit rock bottom, the Net Asset Value of SIP mutual funds also decreases. As a result, an investor ends up buying additional units of mutual fund scheme at the same price. Over time, as the markets begin to pick up its pace, the value of SIPs drawadditional returns as oneaccumulates more mutual fund units. This phenomenon ispopularly known as the power of compounding. Some people also refer it to as the eighth wonder of the world. So, if you pause or ultimately stop your investments in SIP during a market downturn, you might fail to clasp this attractiveprospect.
While a market downfall might primarilyappearterrifying, relax and understand that this too shall pass. You might also use this as your overall investment strategy. Remember, pausing your SPs, or worse stopping your SIPs will turn your notional losses into real ones. So, instead of redeeming your SIP investments, consider re-evaluating your investment portfolio and making necessary changes. Happy investing!