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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