With equity benchmarks Sensex and Nifty plunging more than 10% from their peaks in September last year, it’s natural for mutual fund investors — especially those investing through the SIP (Systematic Investment Plan) route — to question whether they should continue their investments.
Market volatility often creates anxiety among SIP investors, even when they are well aware of benefits like rupee-cost averaging. SIPs allow investors to purchase more units of a mutual fund when prices are low and fewer units when prices are high, averaging out the cost of investment over time. However, being aware of the concept is one thing, and having patience during real-life market downturns is another thing.
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As the second half of 2024 witnessed continuous market fluctuations, with no signs of stability even in the first two weeks of 2025, many mutual fund SIP investors might have one question on their minds: Should I stop my mutual fund investment?
So, is it finally time to stop SIPs or is this an opportunity to take advantage of the market dips and continue investing?
‘Market turbulence should never be the reason to stop an SIP’
Experts believe that a falling market should never be the reason to stop an SIP; however, it’s important to take a pause and evaluate whether you have invested in the right mutual fund schemes. Remember, SIPs are just one way of investing; ultimately, your money goes into a fund, and therefore, it’s crucial to ensure that you’re invested in the right fund that aligns with your financial goals and risk tolerance, according to them.
They suggest that if invested in the right fund and your wealth allocations are on track, continue your SIPs. Some experts may even recommend adding more funds over time to further diversify your portfolio. But, if you’re not in the right fund, it’s important to think about how to correct the situation, keeping in mind the tax implications of any changes you make, they caution investors.
SIP investors wonder if market valuations are still too high
Many investors might be concerned that further market corrections could still occur, given valuations perceived as high. In this context, let’s understand from market experts whether, given the current market scenario, valuations are indeed still elevated or if they have reached more reasonable levels.
“With the benchmark Nifty index trading at a one-year forward P/E multiple of about 22x, we believe that the recent correction in markets has moderated valuation to reasonable levels, and most of the uncertainty surrounding the global and domestic economy is seemingly priced in at the current levels,” says Manish Chowdhury, Head of Research, StoxBox.
Arindam Ghosh, co-founder of Alphaniti Investment Advisors, also believes that on an absolute basis, there is moderation in valuation at the index, but more importantly, it’s much deeper in the broader market and stocks. “A meaningful portion of the froth in some pockets of over-exuberance have dissipated which makes valuation look relatively better. Whilst it’s impossible to rule out further corrections given the elevation of global risks on multiple fronts, smart investors would have started the early process of identification as valuation may start looking progressively attractive.”
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Why pausing SIPs not considered a good strategy irrespective of market conditions?
Pausing SIPs may not be a great strategy unless, of course, you are temporarily short of cash flow. The whole idea of an SIP is that you should continue investing through bull and bear markets, and what often is missed is that the SIP needs to be in the right fund.
How many mutual fund schemes should one ideally invest in during turbulent times?
Ideally, these investors do not need too many funds in their portfolios. It could be argued that for their exposure to the stock markets, perhaps two diversified funds (flexicap or focussed) are all they need. Beyond that they are just either over-diversifying, or worse, buying into sectoral and thematic funds which do not suit most investors.
Which categories of funds are best suited currently for navigating market volatility?
As a thumb rule, stick with flexicap and focused funds, as they are diversified and allow the fund manager to allocate money based on emerging opportunities. Owning too many mutual funds is not a sound long-term investment strategy.
If a mutual fund is underperforming compared to its peers, how long should investors wait for a potential revival before considering a switch or redemption?
Always ignore short-term underperformance or overperformance. Focus on the goals set by the fund manager in terms of management style and whether they stick to it. Additionally, assess whether the manager tends to perform well over market cycles. It’s points like these that matter. Short-term performance is just noise that could lead to poor investment decisions.
Conclusion:
Regardless of market conditions, if you have started an SIP, you should never stop it just because the market has corrected by a few percentage points. When in doubt, remember that both bull and bear markets offer advantages to your investments: bull markets enhance the value of your already invested amount, while bear markets provide an opportunity to buy more units with the same amount of money as before.
Another key thing to remember is to choose a good fund. Over-diversification is something you must avoid at all costs.