Even the most disciplined investors can get uneasy when the stock market begins to fall. When portfolio values decline, one of the first questions an SIP investor may ask is whether continuing investments makes sense or whether it is better to pause until markets recover.
There is no single solution. This should depend on the investment objective, time frame, risk appetite, and whether the mutual fund still meets the investor’s needs. Don’t consider an SIP bad solely based on a market fall.
What happens to your SIP when the market falls?
If a mutual fund’s NAV is going down, the same SIP amount buys more units than it would at a higher NAV. For instance, if the NAV is ₹20, a ₹1,000 instalment buys 50 units, and at a NAV of ₹10, the same buys 100 units. That’s the fundamental of rupee-cost averaging. Investors buy units over several installments at varying prices, not at a single price.
However, you may lose money if you buy more units at lower prices. The NAV may also decline further, and the investment’s NAV may be less than the amount invested for a certain period. Mutual fund investments are market-linked and carry the risk of capital loss.
Why do some investors continue SIPs during market downturns?
One reason is that an SIP is designed around regular investing rather than predicting the perfect time to enter the market. A continuous SIP means investors don’t have to decide whether a given day is appropriate to invest every time the market moves.
In a falling trend, the fixed investment can buy more units at a lower NAV. When the market turns around, those extra units may help the portfolio. But this may only happen if the market performs well in the future, and it should never be considered a guarantee. The bigger gain may be behavioural.
Sticking to an investment plan can help you avoid the temptation to make irrational choices based on short-term market fluctuations.
Should you stop your SIP when the market is down?
A mere pullback could be a permanent exit from an SIP. Stopping to invest may mean missing future market recoveries, while those who continue investing follow their investment strategy.
Doesn’t imply that an SIP ought to go on in a blind way. When your financial situation has shifted, your objective has changed, your risk level has decreased, or the mutual fund no longer fits your needs, a review may be appropriate.
The important distinction is between market volatility and a change in your investment case. The former is a normal feature of market-linked investing; the latter may justify reassessing the strategy.
Can a daily SIP calculator help you plan during volatile markets?
Investors can use a daily SIP calculator to compare two possible outcomes, with different investment amounts, time horizons, and assumed rates of return. This can help you to get a sense of what a future value might be like if you made different contributions or invested for a different number of years.
But calculator results are illustrations, not forecasts. A mutual fund’s actual returns will vary with market conditions, and the assumed rate of return does not necessarily reflect actual returns.
How can technology make SIP investing easier?
Investment platforms can facilitate recurring investments, tracking investments, and displaying portfolio information. Investors should evaluate the various investment options, ease of use, transaction features, fees and security when comparing the best investment apps.
An investment app should make it easier to follow a well-defined investment strategy rather than making daily decisions based on market fluctuations.
Conclusion
As long as your investments align with your goals, time horizon, and risk tolerance, it makes sense to continue an SIP during a market fall. It can also help you invest in a disciplined way in all market conditions. However, a SIP investment does not mean there is no market risk or guaranteed returns. A better way is to remember why you invested in the first place and consider that before you respond to a down market.
