Stop SIP or proceed? Learn when to take the actual decision

Today, one of the most favored schemes of periodic investing is SIP or Systematic Investment Plan. It is a method by which you have the option to invest a certain amount of money in equity or debt funds on a monthly basis. On one side, it creates a habit of investing, on the other side, it also supports creating a solid financial base in the long term. But numerous times, circumstances come when an investor wonders - should he stop SIP now?

To get the answer to this query, first, you need to look - what was the primary reason behind your investment. Most often, one tends to consider terminating SIP because of short-term market fall, low returns, financial strain or any unexpected risk. But, prior to decision-making, you must check whether the financial objective for which you had initiated SIP has been met. For instance, you initiated SIP to fund your child's education, secure your retirement years or purchase a home. If that target has been fulfilled now and you have received the needed amount, then halting SIP might be appropriate.

But if the target is still not fulfilled, halting SIP halfway is not a wise idea. Instead, continuing this habit will be helpful for your future life. The character of SIP is such that it can provide good returns in the long term. One of the key reasons for this is the compound interest and rupee cost averaging effect. That means you purchase when the market is high, and you purchase when the market is low. By doing this, in the long term, you acquire units at a decent price on average, which has the potential to fetch more returns in the future. But here again another thing is greatly significant—how good the fund you have invested in is doing.

If you notice that your fund is continuously doing badly relative to other funds of the same type, then you must pause and think for some time. But there is no need to worry after experiencing a drastic fall for some months. Compare the fund's performance with the whole market. Often one can observe that the whole market has dipped temporarily, and your fund too is impacted by that. But eventually, it may change for the better. So performance must always be evaluated keeping in mind long-term outlook. One more vital question is – has the goal of your investment changed? At times certain fund houses alter the strategy of the scheme, like moving to low-risk funds from high-risk areas. If this new strategy or goal does not align with your financial goals, then you might not be in that scheme. In this regard, it would be advisable to seek alternatives and consult.

Also, when considering closing SIPs, you should consider your whole investment portfolio. You should verify if closing SIPs is putting you in excess exposure to any specific asset class in your portfolio. Because, more or less equity exposure or debt exposure could lead to more risk. A diversified portfolio always aids in minimizing risk and giving stable returns.

The stock market is always full of fluctuations.

At times, there can be sudden declines in the market due to various types of geopolitical instability, international economy, inflation or war situations. As a result, many people think of closing SIPs. But it is important to keep in mind that even if the market decline is temporary, it tends to bounce back in the long run. Therefore, you should not sell out of panic or emotion. Instead, you must study the market to see how fleeting this fall has been and where the hidden opportunities might be. At times, some investors suspend SIPs because of financial hardship. Because of insufficient funds, sudden expenses or employment uncertainty, they might cancel all SIPs simultaneously. But the truth is that this might prove harmful to your future finances. Under such circumstances, you can suspend SIPs for a while rather than canceling them altogether. Most mutual funds allow suspension of SIPs for 3 to 6 months. You may resume again like before once the situation gets better.

SIPs are not lucrative in bringing huge profits within a day or a year, but it is more of a long-term financial practice.

It makes investors habitual in the market while simultaneously creating a solid capital for the future. So if you are considering closing out your SIP now, ask yourself some questions—what do you want to achieve, how is the fund doing, how is your overall portfolio doing, how bad is the market situation, and whether you will be able to reinvest in the future. Finally, a careful financial evaluation is the need of the hour before closing your SIP. Acting on your actual position instead of emotions, hearsay, or short-term market movements will prove to be the most lucrative step in the long term.