Know When Should You Stop Your SIP and When You Shouldn’t

In the present market condition, we are looking at a high market price chart which looks like it will remain in the foreseeable future. In a time like this when a number of naysayers have emerged saying how it is only beneficial to invest in Systematic Investment Plan when the market is moving both upward and downward, since only then you get to buy more funds and then lesser when the market is high, you should hold your horses and stick to your decision of continuing your SIPs.

While it may seem like a “sound” move to close your SIPs because the market is going on an all time high, in this article we are going to see why it will not be so much of an informed decision.

According to some of the markets sound investors who have mastered the art of discipline and sticking to their decision through the thick and thin, mutual funds market only favours those who have the perseverance to continue investing without paying a lot of attention to how the market is performing.

Regular SIP
Stop at High
Investor started SIP of Rs.5,000 in April 2010 and continued
Investor stopped the SIP after NIFTY hit 22. Avoided investment at higher values
Invested Rs.6 Lakh
Invested Rs.4.25 Lakh
Final Value Rs.12.2 Lakh
Final Value Rs.9.3 Lakh

If you closely examine the table above, you will find the difference in returns that investors generated when they invested in regular SIP vs. when they took the money out when the market was on a high note.

While the very reason behind the fact that you should not take money out from SIP and close the account when the market is high, is very strong, as a wise investor you should know when to stop your Systematic Investment Plan.

When Should You Stop SIP?

Although, what we would suggest is to continue with your SIP investment without trying to time the market, there can be instances where factors more than the market situation can make you remove your money from the SIP account.

Here they are -

1. Your SIP is on a Track of Underperformance

While there are funds like Axis SIP Plan or SBI Mutual Fund that are known to offer the best returns, irrespective of what market condition it is, there have been instances of funds not performing well for their investors for over a period of 3-4 years.

So, if you are finding yourself such funds in your portfolio which are not giving you any returns or are giving you a lot less than what you signed up for, stop investing in SIP.

2. You Have Met Your Financial Goal

SIP has grown to become a synonym of discipline and if there is one thing that does not bode well with discipline, it is greediness. When you meet all the financial goals that you expected to achieve at the back of your SIP investment - something that will happen easily when you have invested in HDFCSIP Plan - it might be the time to get off the market.

So, if you were investing in SIP for buying a house, a car, planning for your child’s education, and plan your retirement, and in some cosmically aligned market condition you find yourself with all the goals achieved, stop your SIP investment.

Now that you have looked into the time when it is an illogical move to stop your SIPs and times when it is not only justified but even advised to redeem your SIPs, let us summarize both the sides in a crux for you.

Close the SIP account when either your fund goes on an under performing mode or your new fund manager is someone whose ideas you do not relate with and when you have achieved the goal you were set out to achieve.

Do not close the SIP when the market is high and is “estimated” to be on a high (the same rule applies for a low market and its volatile counterpart). In short, if it’s just about the market condition, keep your SIP fund tightly close to your heart.

With this, you now know when the monthly SIPs should be requested to stop and when they should simply continue. What next? Get in touch with our investment experts and find out the list of Mutual Funds that will never let you face such a situation in the first place.

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1 comment :

  1. Hey, I am pleased to find your blog. It is truly a valuable post. I still haven’t thought about my future savings but guessing that it is right time to get started with it. Being a newbie I just don’t know which options would help me to generate good revenue. Do you know about a certified financial planner whom I can contact?


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