Reconsidering SIP investments due to the current market situation
Vandita Shah has been concerned about the recent developments in the equity markets and a possible slowdown in the economy. Her investments are primarily through mutual funds SIPs. She has invested for the long term and does not require the funds for at least 5-7 years. She is, however, worried about the fall in the value of her investments and is wondering if she should exit her SIP commitments and put in the money again when the markets have bottomed out. She is not sure whether she will gain by continuing with these at this stage and would like some clarity on the issue.
Vandita's SIP investments will help her portfolio in two important ways. One, she will be able to invest in the equity markets at lower levels, which will reduce her cost of acquisition and her returns will be enhanced when the markets recover. Second, continuing with the SIPs in equity funds will protect her portfolio from being too heavy in other investments, such as debt or gold, and the consequent impact on returns when these investments underperform.
Vandita's intention to exit the SIPs springs from the view that she will re-enter when the markets begin to improve. However, it will not be easy to determine the exact point at which the upturn will happen and she may get in at much higher levels than intended, thereby reducing her returns. Moreover, the decision to invest in a market that has been falling may not come easily. In the case of an SIP, since the investment happens automatically, Vandita will not have to take the call for each instalment and it is, therefore, a much easier option to execute.
Since these are investments for long-term goals, Vandita should not allow the market movements to dictate her investment actions, especially because she is not much of a hands-on investor. If she is comfortable with the investment choices she has made, then she must stick to them. Her intervention should be only to the extent that is necessary to book profits periodically. This is so that the profits earned do not run and her portfolio retains the proportion of different investments that were originally intended.
Source: Economic Times
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