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Should you give a break to your SIP?

A lot of investors take the obviously smart step of starting SIPs in equity mutual funds. It’s a journey well begun. However, many stop their SIPs after a while and the reasons they cite are quite a few. But not all justify the need to withdraw.

This article was published in DNA.

A lot of investors take the obviously smart step of starting SIPs in equity mutual funds. It’s a journey well begun. But, many stop their SIPs after a while. The reasons they cite are quite a few. The top three reasons we have come across are:

#1. Market is down and my SIP is losing money.
#2. The market is very high and I’ll start again when the market cools down.
#3. I have bought a house and the EMI burden is not allowing me to maintain my SIPs.

Let’s look at each reason in turn and see if they make investing sense. Before we begin, there is one thing every investor should keep in mind. An SIP is designed for one primary purpose. That purpose is to make it easier as well as affordable for people to invest in mutual funds.

Reason #1

The stock market will see frequent ups and downs. This is called market volatility and can be scary. What is also true is that, in general, the market goes up over the long run and so do shares of most “good” companies. Good equity mutual funds make it a point to invest the money collected from investors, such as yourself, in good quality stocks.

Therefore, in the long run, equity mutual funds have done well and have enriched many who stuck with their SIPs.

Reason #2

When it comes to equity investing, a market high is seen as too much of a good news. Thanks to market commentators issuing warnings that a “market correction “ is due, many investors believe they should stop their SIPs. They intend to start investing again only when the market has finished “correcting”.

This is a classic case of attempting to time the market. The fact, however, remains that the market, complex as it is, can go up even further. The idea behind a SIP is to stay invested, through ups or downs and allow equity to do its job by helping you stick to a timeline that works best for equity.

Reason #3

Buying a house is generally a big personal milestone for most families. We undertake many sacrifices to afford our dream homes. We often stretch just beyond our budget and the EMI ends up being a big chunk of our salary. Who, then, has money for a SIP?

Just as your home is non-negotiable, so is your retirement. You will only have your investments to live on once you retire. And delaying retirement might not really be under your control, even if you believe that you can work well into your 70s.

Yes, EMIs can be a big burden. But rather than stopping your SIP, you can reduce the amount and then increase it every year as your salary increases.

A good habit stops working if you stop practising that habit too early. So give your SIPs a chance to grow. More than the market, you control their true destiny.

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