Today, market volatility is a dining table conversation. It has caught everybody’s attention. The Coronavirus scare has practically shut down the world economy. March was synonymous with volatility, the Indian VIX (Volatility Index) crossed 80 – nearly 3.5 to 4 times highs of the last couple of years. Many investors are seeing even their SIP returns turn negative. So, does this warrant stopping SIP?
Here are 3 reasons to continue your SIP:
Your SIP is linked to a goal – whether its retirement, your son’s education, or your daughter’s wedding. The SIP is meant to fulfil a financial goal. The purpose of a SIP is to tackle the ups and downs of the market. By stopping your SIP, you are defeating its purpose. In fact, market lows offer more value for money through SIP.
Every successful investor knows that the secret to good investment performance is to invest when the chips are down. This has been termed as the fastest bear market in history and recession fears are prevalent. The last financial crisis was more than a decade ago. It will pay to trust market history and make a smart investment, rather than wait for the next time. So, SIP is actually the best way to invest. A gradual and incremental approach is ideal for turbulent markets.
Marathon SIP/ Asset Allocation
The idea is to keep investing through this phase. If a pure equity SIP has you worried, asset allocation is the way to balance market uncertainty. The marathon SIP invests across asset classes according to your risk profile. This ensures that there is harmony in your portfolio and that you comfortably invest through the different phases of the market.
Reasons to reconsider your SIP are:
- You’re nearing a goal (less than 3 years away)
- The quality of the mutual fund has deteriorated
- A superior mutual fund is available
- You’re building an emergency fund
Even in these cases, there is no need to stop a SIP. You could just reallocate it into a more appropriate asset class or avenue. You should consider stopping your SIP only in an extreme case of job loss. If you’re facing a pay cut, then you could opt to reduce your SIP rather than stop it altogether.
Ideally, this is one of the best times to be invested in equity for those with an investment horizon of at least five years. Talk to us to make the most of what the market has to offer!