Most people investing in Mutual Funds choose the SIP (Systematic Investment Plan) method. This ensures that a comfortable portion of their monthly savings gets channelled into mutual fund schemes. COVID-19 induced market volatility has made investors wonder whether they should stop their SIPs.
To keep it short, the answer is no, you shouldn’t stop your SIPs.
Why? Because SIPs work in a manner where a fixed amount is invested every month into mutual funds. During a bull market, when asset prices go up, it results in an increase in your mutual fund NAV (net asset value). This means that as the NAV increases you get fewer units every month as you are investing a fixed amount as SIP. Thus, your incremental gain on each SIP instalment reduces.
On the contrary, during a bear market, the opposite happens. Right now, we’re in a bear market. Asset prices are falling and as a result, your mutual fund NAVs are also coming down. This means you are buying more units every month with the same investment. In the long run, when markets recover from this pandemic, you stand to benefit. The additional units you accumulate in these times will boost wealth corpus.
Hence, it is paramount that you don’t stop your SIPs at this point. Also, now is a great time to deploy surplus savings. Take advantage of low mutual fund NAVs with a smart lumpsum. Doing more now means you’ll comfortably meet your financial goals.