SHOULD I STOP SIP?

Whether Mutual Fund is best investment tool for wealth creation or not can be a question for debate, but the ‘Mutual Fund Sahi hai’ campaign by Mutual Fund industry went undoubtedly deep in the minds of Indian investors. 

The Asset Under Management (AUM) of Mutual fund industry grew at the Compounded Annual Growth Rate of Return (CAGR) of close to 16% during last 5 years. Equal thanks to the robust growth registered in capital market. The equity market (Nifty 50) has rallied by more than 80% when compared with its low of 7,610 during March 2020.

Over the period of time, Systematic Investment Plan (SIP) for equity schemes of mutual fund has become popular tool amongst the common investors which avoids the worry of timing the market and provides other benefits like rupee cost averaging, long term wealth creation, tax benefit in some cases etc.

Considering that equity market is at all time high, few investors have also initiated the process of booking profits for these past investments. The natural question arise in the mind of common investor is about future plans for their investment. While majority of us cannot time the market, the big question is - should I continue my ongoing Systematic Investment Plan (SIP)? Generally investors are advised to continue their SIP during falling markets, but there is little guidance available as what to do when markets are in positive mood.

Here is my advice in favor of continuing the SIP of equity mutual fund for below two reasons:

1.     Timing the Market: Nobody can time the market perfectly. Timing investment is logically impossible because the best entry and exit opportunities are known only in hindsight. No one can predict market movements with certainty. Therefore, it is important to allow your investments to compound over a long term. Hence it is logical that we continue our regular investment in discipline mannered without worrying too much about market levels.

 2.     Asset Allocation: Equity is considered to be best asset class for long term investor. An investor cannot ignore entirely the equity as an asset class and should have adequate allocation to his portfolio according to his / her risk appetite. SIP helps the common investor to have proper allocation to this asset class while minimizing the risk of investment at highest level.

Remember, mutual funds are not meant to buy low and sell high. In simple terms, they can be explained as ‘invest when you have money and divest when you are in need of money.’ A person should ideally dis invest from MF when his / her goal is achieved. While it’s equally hard for common investor to wait when he observes his portfolio in green zone and that’s why investing is also classified as an art than science by experts.

Let me at end convey my readers best wishes for New Year and wish that their investment prospers.

Author: CA Hemraj S Joshi

Views are personal. Please consult your wealth advisor before taking any investment or other related decision.