Mutual Funds: Stock markets in India have been under pressure for a few days now, and US President Donald Trump’s announcement to impose a 50 percent tariff on Indian goods has not helped.
Although markets ended positively on Thursday, they have been under pressure for the past few days. One may wonder whether investors should reconsider continuing their systematic investment plans (SIPs) for mutual funds?
Meanwhile, financial experts do not recommend investors pause their SIPs – at least not on account of panic or scepticism. The reasons they share are as follows.
Volatility should not lead to the pausing of SIPs
I. Rupee cost averaging: By buying securities in a staggered way (every month, fortnight, or quarter), you get to average out the buying price. This improves your chances of earning gains. So, when you buy mutual fund units via SIPs, you can make the most of rupee cost averaging. This concept is similar to the dollar cost averaging espoused by Ben Graham.
“SIP provides the benefit of Rupee Cost Averaging, which is an approach in which you invest a fixed amount of money at regular intervals. This, in turn, ensures that you buy more units of a particular mutual fund when prices are low and less when they are high,” says Preeti Zende, founder of Apna Dhan Financial Services.
II. Volatility is the part and parcel of the investing journey: Experts recommend that investors stay put regardless of volatility. After all, this is the part and parcel of life as an investor.
“It is very difficult for common investors to see their portfolio bleeding daily. This leads to shaking up their confidence in an equity asset class whereas other asset classes like gold and debt could be giving better returns. The new investors perhaps never saw such deep correction but pausing the SIPs is counter productive,” adds Ms Zende.
III. Financial goals: Another pertinent reason for not pausing SIPs is that your investments are meant to meet financial goals. So, temporary bumps in the road do not hold any significance.
“Being committed to financial goals requires you to stay invested and maintain the financial discipline of continuing your SIP regardless of volatility,” says Deepak Aggarwal, a Delhi-based financial advisor.
IV. Long-term is always good: As indicated above, the losses and negative returns stand to get recouped in the long run. Despite a steep correction, the Sensex had delivered a modest 8 percent return last calendar year in 2024. Since 2016, Sensex has been on a winning streak of positive annual returns, notes thisLivemint article.
“If you are investing in equity mutual funds towards your long-term goals, correction is the best time to continue your SIPs to acquire more units. This helps you increase the value of your overall portfolio once the market recovers,” Ms Zende adds.