Are you thinking of stopping your SIP investments when the market is high? Don’t do it! Learn how to tweak your SIP plan for more profits and less risk.
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What is SIP Investment?
Systematic Investment Plans (SIPs) are a popular way to invest in mutual funds. They allow you to invest a fixed amount at regular intervals, regardless of the market conditions. But what should you do when the market reaches new highs?
Should you pause or stop your SIP investment to avoid a possible correction? Or should you continue investing as usual? In this article, we will explore the pros and cons of both options and suggest some strategies to help you make the best decision for your financial goals.
Why You Should Not Stop Your SIPs During Market Peaks
Pausing or stopping your SIP investment during market peaks might seem like a smart move to avoid buying at high prices and losing money if the market falls. However, this strategy has several drawbacks:
Timing the market is difficult
Predicting market movements is almost impossible, even for experts. You might end up missing out on the opportunities and returns that come with staying invested for the long term.
SIPs benefit from cost averaging
By investing a fixed amount at regular intervals, you buy more units when the prices are low and fewer when they are high. This reduces your average cost per unit over time and enhances your returns in the long run.
SIPs foster discipline
By following a regular and automated investment plan, you avoid emotional decisions and stick to your financial goals. Stopping your SIPs can disrupt your discipline and make it harder to resume later.
With input from mint, Rishabh Parakh, Chief Play Officer, NRP Capitals explains, “SIPs must not be stopped given the market highs and should only be stopped in case there is a change of financial goals or future earnings but market high lows are not in anyone’s control. For lumpsum, one should spread the same in 6-12 months via a systematic transfer plan.”
When You Should Reassess Your SIP Investment
While stopping your SIPs during market peaks is generally not advisable, there could be some situations where you might want to review your SIP investment plan and make some adjustments. Some of these include:
When you have short-term goals
If you need to access your invested funds shortly, you might want to pause or reduce your SIPs to preserve your capital and liquidity. You don’t want to risk losing money if the market drops right before you need it.
When you are worried about market valuations
If you think that the market is overvalued and due for a correction, you might want to temporarily pause your lump sum investments and wait for a better entry point. However, this should not affect your SIPs, as they are designed to work in all market scenarios.
When you are stressed about market volatility
If the market fluctuations make you anxious and affect your mental well-being, you might want to take a break from investing until you feel more comfortable. However, this should be a personal choice and not a reaction to the market conditions.
How to Optimize Your SIPs in a Bull Market
If you decide to continue your SIPs during market peaks, you can still optimize your returns and reduce your risk by following some simple tips:
Diversify your portfolio
Don’t put all your eggs in one basket. Invest in different asset classes and sectors to balance your risk and reward. You can also allocate some of your funds to less volatile assets like debt funds or gold to hedge against market downturns.
Rebalance your portfolio
Review your portfolio periodically and adjust your asset allocation according to your risk appetite and time horizon. You might want to book some profits from your equity funds and reinvest them in other assets to maintain your desired mix.
Increase your SIP amount
If you have surplus income or savings, you can increase your SIP amount to take advantage of the market growth and compound your returns. You can also use a top-up facility to automatically increase your SIP amount by a fixed percentage every year.
Conclusion
SIP Investments are a powerful tool to create wealth in the long term. They help you invest regularly, average your cost, and discipline your behavior. Stopping your SIPs during market peaks can be counterproductive and detrimental to your financial goals. Instead, you should stick to your plan and make some adjustments if needed.
Disclaimer: You can also consult your financial advisor for more guidance and support.
