Have you invested in a SIP? If you have, the pandemic would have brought in multiple concerns and questions about the status of your investment. With the current state of the economy and markets, should you continue with your SIP or pause/stop investing in it? The answer to that question is not a simple one.
Let us look at a few factors you need to consider before you decide about your SIP:
Going back to basics:
The primary reason or advantage of investing in an SIP is to have a regular and disciplined investment plan regardless of the market conditions. In the long term, a regular investment will help you get the benefits of all kinds of market conditions. Also, it stabilizes your investment plan. Especially, if you are one of those who procrastinate your investment plans because of volatile markets, SIP helps you regularize your investment and get over the psychological barrier.
Increase in the units:
You can leverage your regular investment in SIP to scale up or down the number of units as per the conditions of the markets. Simply put, a long term investment in SIP will enable you to buy more units when the market is down and fewer units when the market is doing well. Therefore, this can reduce the average purchase cost per unit over a long period. SIP or regular investments allow us to maximize our returns with this strategy. Hence, it could be counterproductive to pause or stop your SIP investments in the volatile markets, as you would be forgoing the opportunity to increase the number of units.
The type of equity portfolio or mutual fund you have invested in and the risk category it falls in, impact your SIP investment decision. Your risk appetite is one of the critical factors that influence your investment choices. For instance, if you have a low or medium risk appetite, equity is a risky option for you as it is highly volatile in the short term. Also, if the markets take a steep downturn, you may even lose your capital with equity investment. On the other hand, No other asset or security can provide premium returns and wealth growth in the long term as equities.
Are you new to investing? New investors tend to panic when there is a sharp movement in the markets. With experience, you would understand the natural high and low cycles of the markets and how to manage your investments according to them. Hence, it is always advisable to seek professional investment guidance to understand the investment strategies in extreme market conditions.
Once you have considered the factors mentioned above that influence your SIP investment, you would be able to understand your stance in any market scenario. However, if you want to make a more informed decision based on data and calculations, you should approach a SEBI Registered investment advisor who can help you through this process.Want to learn more about managing your SIP investment? Reach out to our experts now.