The idea behind a SIP is to stay invested, through ups or downs and allow equity to do its job by helping you stick to a timeline that works best for equity
A lot of investors take the smart step of starting Systematic Investment Plans (SIPs) in equity mutual funds. It's a journey well begun. An SIP is designed for one purpose, which is to make it easier as well as affordable for people to invest in MFs. But many investors stop their SIPs after a while.
Let's look at each reason in turn and see if they make investing sense. Before we begin, there is one thing every investor should keep in mind. An SIP is designed for one primary purpose. That purpose is to make it easier as well as affordable for people to invest in MFs.
Losing money in falling market
The stock market will see frequent ups and downs. This is called market volatility and can be scary. What is also true is that, in general, the market goes up over the long run and so do shares of most "good" companies. MFs make it a point to invest the money collected from investors in good quality stocks. Therefore, in the long run, equity MFs have done well and have enriched many who stuck with their SIPs.
Waiting for high market to cool
When it comes to equity investing, a market high is seen as too much of a good news. Thanks to market commentators issuing warnings that a "market correction " is due, many investors believe they should stop their SIPs. They intend to start investing again only when the market has finished "correcting". This is a classic case of attempting to time the market. The fact, however, remains that the market, complex as it is, can go up even further. The idea behind a SIP is to stay invested, through ups or downs and allow equity to do its job by helping you stick to a timeline that works best for equity.
Need money for buying home
Buying a house is generally a big personal milestone for most families. We undertake many sacrifices to afford our dream homes. We often stretch just beyond our budget and the EMI ends up being a big chunk of our salary. Who, then, has money for a SIP? Just as your home is non-negotiable, so is your retirement. You will only have your investments to live on once you retire. And delaying retirement might not really be under your control, even if you believe that you can work well into your 70s. Yes, EMIs can be a big burden. But rather than stopping your SIP, you can reduce the amount and then increase it every year as your salary increases.
A good habit stops working if you stop practising that habit too early. So give your SIPs a chance to grow. More than the market, you control their true destiny.
The writer is founder & COO, Scripbox
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