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2 mins Read | 3 Years Ago

Why is it Important to Not Stop Your SIP in a Volatile Market

Why is it important to not stop your SIP in a volatile market?

Systematic Investment Plan (SIP) is a benefit provided by Mutual Funds to invest in a disciplined manner. Through SIP, investors can invest a predetermined amount of money at chosen regular intervals. The fixed amount of money can range from being as low as Rs 500 and the intervals can vary from being weekly to annually. SIP permits us to buy units on a fixed date every month. By following the SIP pathway of investing, investors remain relatively immune to the changes in the market.

Let us have a look at why you should not stop your SIP in a volatile market.

  1. Market Timing: Many investors feel inclined to time the market. However, research indicates that a disciplined investor with SIP gets higher returns than the one who times the market. SIP does not require you to time the market and this is one of its biggest benefits. When you time the market, there is a high possibility that you will miss the larger picture. As a result of market timing, you might stay out while the market is performing well or may enter when market performance is poor.

    SIP averages out the benefits and hence, reduces the risks posed by market timing.

  2. Rupee Cost Averaging: As a concept, rupee cost averaging means averaging out the price at which you purchase units of a Mutual Fund. In contrast to a lump sum investment in which a specific number of units are bought by the investor all at once, in SIP the purchase of units is done over a long period of time at regular intervals.

    SIPs offer you the advantage of rupee cost averaging. Rupee cost averaging is an investment method which is applicable to periodic definite instalments in a Mutual Fund scheme. As the instalment amount is fixed and regular, more units are purchased when the market price of shares is low and less units are bought when the market price of shares is high. This process allows the investment risk to be spread across a spectrum of market dynamics.

  3. Long Term Returns: SIP is best for long term financial planning. Over the last several years, SIPs have produced huge returns as they could enter markets at both low and high phase. When you invest in Equities through the SIP mechanism, you should not limit yourself to short term financial goals and monetary returns. Equities have the capacity to provide inflation adjusted returns in the long run. Hence, when you stop your SIP during the phases when the market is volatile, you are missing out the larger scenario.

  4. Power of Compounding: Power of compounding is a beneficial aspect of SIP. What does power of compounding mean? Knowing the difference between simple interest and compound interest is the key to understanding the advantage of this mechanism. Simple interest means acquiring interest only on the principal amount. On the other hand, in compound interest, interest amount is added to the principal amount and interest is calculated on the resultant new principal. As the Mutual Funds in the SIP are in instalments, they get compounded and hence, increase the invested amount.

  5. Affordability: The monthly instalment amount required for SIP is as low as Rs 500 and hence, SIPs are an affordable investment option.

A look at the above reasons tells us that SIP investment is a smart option of financial planning and Mutual Fund investment. You should continue your SIP investment, irrespective of the condition of the market as SIP minimises the risks posed by a volatile market.







The contents of this document are meant merely for information purposes. The information contained herein is subject to updation, completion, revision, verification and amendment and the same may change materially. The information provided herein is not intended for distribution to, or use by, any person in any jurisdiction where such distribution or use would (by reason of that person‘s nationality, residence or otherwise) be contrary to law or regulation or would subject lClCl Bank or its affiliates to any licensing or registration requirements. This document is not an offer, invitation or solicitation of any kind to buy or sell any security and is not intended to create any rights or obligations. Nothing in this document is intended to constitute legal, tax, securities or investment advice, or opinion regarding the appropriateness of any investment, or a solicitation for any product or service. Please obtain professional legal, tax and other investment advice before making any investment. Any investment decisions that may be made by you shall be at your sole discretion, independent analysis and at your own evaluation of the risks involved. The use of any information set out in this document is entirely at the recipient's own risk. The information set out in this document has been prepared by ICICI Bank based upon projections which have been determined in good faith by lClCl Bank and from sources deemed reliable. There can be no assurance that such projections will prove to be accurate. lClCl Bank does not accept any responsibility for any errors whether caused by negligence or otherwise or for any loss or damage incurred by anyone in reliance on anything set out in this document. The information set out in this document has been prepared by ICICI Bank based upon projections which have been determined in good faith and sources considered reliable by lClCl Bank. In preparing this document we have relied upon and assumed, without independent verification, the accuracy and completeness of all information available from public sources or which was provided to us or which was otherwise reviewed by us. Past performance cannot be a guide to future performance. 'lClCl ' and the 'I-man' logo are the trademarks and property of lCICl Bank. Misuse of any intellectual property, or any other content displayed herein is strictly prohibited.

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