Should you stop SIPs when markets tank?

The sharp correction in the equity markets has led to returns from Systematic Investment Plans or SIPs turning negative for the last 12-24 months. Monthly collections through SIPs hit an all time high of Rs 7,700 crore in September, which shows high interest in equity mutual funds through the SIP mode. Financial planners suggest that

investors should not be swayed by volatility and stay focused on their investment goals.

What should I do if my SIP returns for the last one year are negative?
SIP is a mode of investing in equity mutual funds for the long term with a time frame of five years and above. A dip in the markets is not a reason for investors to discontinue or stop their SIPs. It gives them a chance to add higher number of units after a fall. If they stay invested for the long term, the equity markets will go through a number of ups and down, and in some of these times, they are bound to see negative returns. In the long term, equity market returns follow nominal GDP growth rates. Hence investors should continue their SIPs irrespective of the ones giving negative returns.

Should I change my mutual fund scheme if the returns have turned negative?
Typically one year is a short time to judge a scheme and the returns it has given in a SIP. Ideally, investors should give the fund manager three to five years to perform. However, if the scheme happens to underperform its benchmark even over a three-year period, then investors could take a closer look at it and move to another scheme which has a better performance. Alternatively, if the mandate of the scheme has changed, or the fund manager has changed, they could discuss this with an advisor or any such professional before arriving at a decision.

How long should investors continue their SIP?
Most fund houses stipulate a minimum time frame of six months for the SIP. Investors can choose any tenure they wish, which could be three, five or even 10 years or link it to their long-term goal such as retirement or buying a house.

Investors could also opt for the perpetual option, which means the SIP will continue till the investor gives an instruction to the fund house to close it. Financial planners suggest investors link their SIP to a goal and continue with it till the goal is reached.

Should I add money to my SIPs even if returns are negative?
Financial planners suggest investors should stay focused on their goals and not be disturbed by market volatility. They should make additional purchases in line with their asset allocation and should not worry about adding money if SIP returns are negative.

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