As an investor, the current situation must have gotten you worried about your investments. The ongoing pandemic has taken a toll on most industries and is bringing down businesses. With the market’s position deteriorating day-by-day and the worry of economic growth looming over us, it is natural to want to stop your Systematic Investment Plan (SIP) investment and liquidate it. But many financial experts advise against this, and they have good reason to say so. By surrendering your SIP, you will incur more losses than by holding it. Systematic Investment Plan eliminates the need to look for peaks and downfalls in the market. Thus, your portfolio can now benefit from the market volatility, which is why you should stick with your investment strategy. So, let’s understand why you should invest in SIP during such a time, compare it with other investment plans and also look at the thoughts of industry experts.

Why invest in SIP during Market Meltdown?

Lower NAV

With the ongoing market condition, the Net Asset Value (NAV) of funds are lower. The strategy of SIP is to buy more units when the fund’s NAV is low, and to buy less when the fund’s NAV is high. This enables you to enjoy Rupee Cost Averaging as the cost of units bought evens out. As the stock market is hitting lower, you can purchase more units and take advantage of lower NAVs than to stop SIP.

Fewer Losses

By liquidating your SIP investment, you will get lower returns. This redemption amount will be less than the original capital invested. Thus, by surrendering, you will incur more losses than by holding your SIP. Instead, you should wait for the market to stabilise.

Historical Performance of SIP

If you consider mutual fund returns over a period of 10-years of various fund schemes, you would realise that many gave at least 4-5 times the returns if not more than that. Thus, the investors who held on to their investments without wavering gained a lot of profit. You could easily find data online, which compares the amount invested 10 years ago via lumpsum as well as SIP and the returns received today. From that data, you can infer that the returns were quite high even when you consider the market lows experienced in 2008. If you consider the 10-year period from 2009 to 2019, you will find that the benchmark index, BSE Sensex, tripled to grow in the last decade. While BSE Midcap index quadrupled and BSE Smallcap index also rose by a large margin. The bottom line for this analysis is to wait out the lows of the market for better and higher returns.

SIP Vs Lumpsum Plan

There are two methods of investing in mutual funds, Systematic Investment Plan and Lumpsum:

SIP Investment

SIP allows you to contribute a fixed amount of sum into a preferred mutual fund scheme on a regular basis. The advantage of choosing a SIP is that it enables you to contribute regularly, opening doors to young investors.

Lumpsum

In lumpsum investment mode, money is invested in one go as compared to SIP, where a small amount is contributed regularly. If you have a large corpus, you can opt to invest a considerable proportion of money into lumpsum mutual funds.

Comparison between SIP & Lumpsum

• In SIP, you do not have to time the market and watch the market movement intently which is the contrary for lumpsum mode
• You require a lower sum in SIP with the minimum sum being as low as INR 500 per month
• SIP enables you to invest in a disciplined way and begin your investment journey in mutual funds whereas in lumpsum you invest a large sum which doesn’t instil discipline
• By investing at one go, you take up a higher risk of buying fewer units without the option of buying in between. While in SIP, you enjoy rupee cost averaging where you buy units depending on market condition.
• Lumpsum doesn’t enable you to enjoy the power of compounding the amount invested, which can be achieved with SIP. This is why many investors opt for Systemic Investment Plan over lumpsum mode.

Thoughts on SIP investment from Industry Expert

Rahul Jain - Head of Personal Wealth Advisory of Edelweiss Financial Services, wrote about the Market conditions of India and how you can take advantage of it. He advised that you can use the market volatility to take stock of your portfolio and reorganise it. This can be achieved by analysing your financial standing and risk appetite, remaining invested in quality stocks, and considering liquid funds that invest in securities with short-term maturities and offer high returns.

While writing about how you shouldn’t cut your losses during the current situation, he guided that patience along with discipline can help you navigate through the current crisis, while also adding significant value to your wealth, in the long run. This is because every stock has been affected, and the lows of the market can be an opportunity to buy quality shares.

Benefits of continuing your SIP

Opportunity to buy Quality stocks

When many investors are surrendering their shares due to the fear of market decline, you can look at this as an opportunity and buy quality stocks. This is also the perfect chance to remove the stocks which are not performing well.

Accomplishing your Financial Goals

By staying invested in your SIP, you can incur fewer losses and accomplish your 5 or 10-year financial goals. If you were to liquidate your funds, the losses would be higher, and you would have to start from square one in achieving your objectives.

Experiment with SIP strategies

There are various SIP investment strategies available that you can try and experiment with. Maybe some strategies can help you limit some losses and aid you in waiting out the worst impact of the market.

What you as an investor, can conclude from this is that you shouldn’t easily give up on your investments. Though panic is the first reaction when you see the market conditions worsening, you would only experience higher losses by liquidating your funds. Hold onto your SIP investment and wait for the market to stabilise.