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. Started SIP without knowledge? You should reevaluate
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, including the risks of market fluctuations in both the short and long term, and you may even be prepared to face volatility affecting your portfolio. However, despite this awareness, you might have chosen a wrong or unsuitable fund that does not align with your financial goals and risk tolerance.
Most people invest in SIPs for the long term, often as part of their retirement planning. However, some also use SIPs for short-term goals, such as funding travel or meeting a major expense. The most important thing to understand here is your risk capacity and investment goals and, based on that, select the right fund. Remember that poor mutual fund choices are often driven by regret. So at any point, if you realize you have made such a mistake, you may consider discontinuing your SIP.
3. Unhappy with fund manager managing your fund
There would be many investors who might be thinking they have done everything right from understanding the mutual fund space thoroughly to selecting a good fund for investing at the very beginning, but somehow their investing journey went the wrong way. And, for this, they may be blaming their fund manager as they do not get expected returns. If you are among such investors, it is important to remember that SIPs are designed for the long term. Market cycles include both ups and downs. A single phase of underperformance should not be used to assess a fund manager’s caliber. You must give your fund manager enough time to navigate market fluctuations.
Having said that despite giving enough time to your fund manager to capitalize on opportunities that similar funds are benefiting from, if you see that your fund has been consistently underperforming compared to its peers, then you may have a valid reason to reconsider continuing your SIP.
Another scenario could be that you originally invested in a passive SIP approach, relying entirely on your fund manager’s discretion. Over time, as you gain knowledge of the mutual fund space, you might develop a preference for a more active, valuation-driven strategy. In such a case, you may consider stopping your existing SIP and restarting with a fresh investment approach aligned with your evolved strategy.
4. Change in financial goals
As life keeps evolving for each one of us, our financial goals also change over time. For example, at the outset, we might have a specific goal, like saving for retirement, a child’s education, or a home purchase down payment, but later on these might take a back seat with new responsibilities on top of the priority list.
So, if you have already saved the amount needed to meet your goals set earlier, you may not need to continue the SIP.
5. Your fund’s poor performance
If your fund consistently underperforms its benchmark and category over multiple years and different periods (beyond short-term volatility) without a valid reason, you may consider stopping your SIP.
Conclusion:
Market volatility is an integral part of investing and one should be equipped and mentally prepared to deal with it. If we observe past returns in equity markets, they have always delivered positive returns over the long term despite short-term ups and downs. So keeping this in kind, stopping SIPs during downturns can prevent you from the compounding benefit and gaining when markets recover.
Remember that stopping SIPs during a market downturn locks in losses and historical data shows that markets recover over time, rewarding those who stay invested and patient.
Disclaimer: The above content is for informational purposes only. Mutual Fund investments are subject to market risks. Please consult your financial advisor before investing.