Why stopping mutual fund SIPs when stock market falls can jeopardise your financial goals.

Why stopping mutual fund SIPs when stock market falls can jeopardise your financial goals.

Highlights

  • Volatility is inherent to equities. It is practically impossible to predict how markets will behave on a certain day.
  • Equities are not a good choice if your goal is very near. Financial planners say the tenure of the investment is critical.
  • Few realize that if their goals are very long-term, a fall in the market today is actually an opportunity to buy more at lower price.
The 806-point drop in the Sensex on 4 October was the fifth biggest single day loss registered by the BSE benchmark in the past five years. t’s a dilemma small investors  face every time the markets tumble. Unfortunately, they usually end up making the wrong choices. Some stop their SIPs in equity funds while others redeem their investments to avoid further losses. “Investors who started SIPs this year will obviously be in the red. But if they redeem now, they will turn temporary losses into permanent ones,” .

10 biggest falls in the Sensex since 2013 
The 806-point crash on 4 October was the fifth biggest single-day loss in % terms for the Sensex in the past five years

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Few realise that if their goals are very longterm, a fall in the market today is actually an opportunity to buy more at lower prices. By that logic, people should be rushing to invest every time markets plunge. “If My goals are 15-20 years away so these short-term dips don’t bother me much. In fact, I see market crashes as opportunities and put in lump sums to supplement my SIPs when markets are down.

What an investor should do: The key ingredients for success in investing are patience, discipline and the ability to understand volatility. Investors stop SIPs when markets are volatile and restart when markets are doing well. But SIPs work best when markets are falling. Investors who continued SIPs during 2008-2009 and 2011-2013 when markets were weak, made more money than those who invested only when markets were doing well. Since the goals are long term, do not panic but continue SIPs.

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