Should You Stop Your SIP When the Market Is Not Performing Well?
Table of Contents
Investors often grapple with the dilemma of whether to stop their SIP (Systematic Investment Plan) during market downturns. It’s natural to feel concerned when returns seem discouraging. However, historical data suggests that staying invested during such periods can be beneficial.
Key Insight from the Study:
The SIP analysis conducted on BSE Sensex TRI from August 1996 to May 2024 reveals a surprising trend: SIPs that experienced lower returns during the initial five years often yielded better returns over a ten-year horizon.
Successful SIP: The Smart Investor’s Choice!
A successful SIP is more about “Starting Early”, maintaining the discipline of “Investing Regularly”, investing for the “Long Term” to achieve our “Financial Goals” and less about “Which Date”, “Which Frequency”, “At what stage of the Market Cycle” etc.
Data Insights: SIP Returns Based on Initial Performance
| First 5-Year SIP Return Range | Average 10-Year Return (XIRR %) |
| Less than or equal to 8% | 18.7% |
| More than 8% | 14.8% |
Why Continuing SIPs Is Wise:
1. Market Recovery Potential:
Equity markets are inherently volatile. A slow start in SIP returns often leads to better performance due to the market’s recovery over time.
2. Rupee Cost Averaging:
When the market is down, your SIP buys more units at lower prices, reducing the average cost per unit and boosting long-term returns.
4. Compounding Effect:
The longer your money stays invested, the more time it has to benefit from compounding. Stopping SIPs disrupts this growth cycle.
4. Avoid Emotional Investing:
Making investment decisions based on market sentiment can be counterproductive. A disciplined approach works better.
Real-World Example:
Consider two investors:
1. Investor A: Stops SIP after five years due to low returns (~8%).
2. Investor B: Continues SIP despite similar returns.
By the 10th year, Investor B sees a significant performance boost, with returns averaging 18.7%, far surpassing Investor A’s returns.
Conclusion:
Stay the Course Stopping an SIP during market downturns could mean missing out on future gains. Historical data supports a disciplined, long-term SIP strategy, emphasizing that market volatility is temporary, but compounding returns can be lasting.
Stay invested, stay disciplined, and trust the process.
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