A Systematic Investment Plan is an excellent tool for ensuring that you amass wealth over the course of a longer period of time. It helps you develop a habit of saving regularly and helps you become more disciplined with your money. Your systematic investment plan (SIP) investments will utilise rupee cost averaging in order to help minimise the overall cost of your investment as well.
But what if the market isn’t reacting the way you anticipated? Should you rebalance your SIP investments or put them on hold? And when would be the best time to do it? These are important questions that every investor has, and therefore addressed below.
When is the best moment to put your systematic investment plan (SIP) on hold?
A brief pause in investments is an option available in all SIPs. Many investors are grossly unaware of this pause feature and abuse it. When the market is unstable and challenging, many investors frequently use the SIP investment pause function. However, this is not the best course of action.
Even if the market is volatile, investors should stick with their SIPs. When the market finally turns around, continuing to invest during the market’s lows enables investors to build up more units, which can ultimately result in good gains over the long term.
However, the pause feature on a SIP should only be used in cases where there is a temporary shortage of capital or loss of job. Pausing your SIP investing for a while can give you breathing room while you figure out your finances. When you have the required funds in your account, you can then proceed with your SIP investment.
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Stopping Your SIP altogether vs Pausing Your SIP
Putting a complete halt to the SIP Investment comes with a number of drawbacks. Following are some drawbacks to be aware of if you are considering terminating your SIP investment: If you do not start a new investment, you might not be able to reach the financial goal you have set for yourself. Once you’ve stopped, there’s no going back; you’ll have to start over. When you consistently make investments and maintain those investments, the benefit of compounding is maximised. If you put an end to the process, you will lose the benefit. If you suddenly stop making SIP payments, you would lose the advantage of rupee cost averaging that you had built up. For the reasons stated above, pausing your SIP is always preferable to stopping it completely.
Key Recommendations for SIP Pause Option
In recent times, a number of asset management companies (AMCs) and online platforms have introduced a tool known as the SIP pause function. Because if you quit investing in mutual funds altogether, you run the risk of being cut off from the industry altogether, which is why this choice gives you the option to do so while still maintaining your connection to it. The length of time that this pause option is available for is decided by the AMC and can range from one month to six months. However, in order to make use of this service, you will need to submit your request to suspend the investment 10–15 days before the SIP is due. It is recommended that you check with the asset management companies (AMCs) that you have invested with.
What time of year is ideal for shuffling your SIP investments?
A Systematic Investment Plan has a lot of flexibility, which is one more of its main benefits. With SIP investing, you have the freedom to change your allocation at any time. For instance, if you have money in equities funds but want to diversify or switch to debt funds due to volatility, you could do so by shuffling to debt funds for the time being.
The opportunity to rebalance SIP holdings occurs most frequently during market downturns. You can ride out the hard patch in the market by remaining invested in the same fund, or you can choose to rebalance your portfolio.
If you do this, you’ll be better prepared to keep amassing wealth no matter what the market does. The market can go through rough stages, and it can be financially exhausting for investors.
Hopefully you can now make informed decisions about pausing and reinvesting in SIPs.
(By Abhinav Angirish, Founder, Investonline.in)