Should one stop SIPs due to recent stock market volatility?
Posted by: Arti Bhargava on Jun 11, 2018, 12.20 PM IST
The recent volatility in the equity markets has got Anandita concerned because her investments are primarily in equity mutual funds. She is a regular investor, who has taken the systematic investment plans (SIPs) route to invest. She sees her investments as long-term holdings and is worried about the possible fall in their value. Anandita wants clarity on whether she should exit her SIP commitments and invest again once the markets have bottomed out or stay put.
In a volatile market, the SIPs will help Anandita do two things that are crucial for her portfolio.
One, when the markets are low, SIPs will help her acquire more units in mutual funds. Her returns will be enhanced when the markets recover, as they will. She will then be able to reap the benefit of holding more units acquired at a lower cost.
Secondly, continuing with the SIPs in equity funds will protect her portfolio from being too heavy on other investments such as debt or gold and the consequent impact on the returns from the portfolio when these investments underperform. Anandita wants to exit the SIPs and reenter when markets begin to improve.
However, to be able to gauge the point at which the upturn will happen is not easy and she may enter at much higher levels than intended, thereby reducing her return. Since these are investments for longer term goals, Anandita should not allow market movements to dictate her investment actions, particularly given that she is not much of a hands-on investor. If she is comfortable with the investment choices she has made, then she must sit tight for the intended horizon and let them grow.