Should I Stop SIP as markets have corrected? I will start again… a common question in your head and on my email & WhatsApp. I have been trying to stop many of you (clients) & readers to continue SIP in wake of COVID19 or any other market correction. Why? Do I want you to make or increase your loss? NO- be assured. Here is my answer to why you should not stop your SIPs – temporary or permanent.

My answer to your question on stopping SIP will be in 2 parts. One will be an example & like a true number guy, I will try you to provide you some easy figures, charts & numbers to save YOU from YOURSELF.

First, let me start by some real-world examples –

Market Correction is a ‘black swan’ (rare) event. They undoubtedly sow panic among Investors.

The investor starts doubting & reasoning, with herd mentality taking over. This is where investors get trapped into making poor decisions.

Some of the common mistakes investors ‘make:

Should I Stop SIP?

Never Ever! As an investor, you are doing an immense loss to long term investing, if you stop SIP when markets correct or panic.

Basic of SIP are –

It is a periodical tool to save money. If you stop you are not saving. Simple.
SIP works best when SIP passes through a time when the market is cheap or down.

When there is a discount on your favorite shirt you bought at full price, will you cry – I am cheated!

Or will you will buy an extra because you know you will need it after a month.

You will love to read this too Life Insurance for NRI & FAQs on Insurance

The same is the case in SIP. You invested in a WORTHY asset and now it is a little cheap then your previous purchase. But you are resenting to buy it now. You know you need them. But you are crying – why did you give me costly before?

The important thing is the PURPOSE BEHIND THAT SIP. GOAL BEHIND THAT INVESTMENT.

Should I Stop SIP – Now some images/numbers:

Over the long-term, the equity market can rebound on positive cues, and reward investors commensurately. While there have been periodic bouts of bear phases, the equity market has always headed north over a longer time frame.

The S&P BSE Sensex has returned an average of 15% annualized return over 15 years on a daily rolling return basis from 1979 till February 2020.

Long-term ride of the equity market has been smooth.

SIP returns in different market phases

One of the biggest blunders that investors make is to discontinue or redeem their SIPs when the market starts falling.

But investors can take comfort from the data. Over the long term, SIPs have outshone lump-sum investment as investors were able to accumulate more units during downturns, lowered the average cost per unit, and ultimately aims to create more wealth.

Between January 2008 and February 2020, while CAGR returns were just 5%, XIRR returns through the systematic route was almost double at 9%, thus showcasing the dividend of disciplined and regular investment.

Let us look at an illustration to assess some of the benefits of SIP investing:

Ajay, Samir, and Vikas began investing Rs 1,000 in an equity SIP, S&P BSE Sensex, from April 1997. Their approach to market volatility, however, varies.

Ajay continues to invest Rs 1,000 during the several bear phases.
Samir doubles the SIP amount to Rs 2,000 for the next one year when the market falls more than 15% during any given month.
Vikas stops the SIP for the next one year when the market falls more than 15% during any given month.

You will love to read this too 10 Best Articles Of 2017

Here is what happens if they stop SIP:

What Should You Do?

Vladimir Lenin’s quote – “There are decades where nothing happens and there are weeks where decades happen” – is apt for the current market environment.