Question: The market is down. Shall I stop the SIP?
Answer: To stop your SIP when the equity market has fallen is the worst possible mistake you can commit. To benefit from an SIP investment, you need to stay invested across market cycles. If you continue with your SIP, you will be able to purchase more units of the Mutual Fund during the downturn. Your long-term returns will benefit from those low-cost purchases. When you stop your SIP, you also flout the principle of asset allocation, which requires that you maintain your allocation to different asset classes at a predetermined level, irrespective of market conditions. By stopping your SIP, you tilt the asset allocation of your portfolio away from equities and towards cash, a decision that will harm your portfolio returns. Going by the logic of asset allocation, you should, in fact, invest more in the equity market when it is down.
Answer: To stop your SIP when the equity market has fallen is the worst possible mistake you can commit. To benefit from an SIP investment, you need to stay invested across market cycles. If you continue with your SIP, you will be able to purchase more units of the Mutual Fund during the downturn. Your long-term returns will benefit from those low-cost purchases. When you stop your SIP, you also flout the principle of asset allocation, which requires that you maintain your allocation to different asset classes at a predetermined level, irrespective of market conditions. By stopping your SIP, you tilt the asset allocation of your portfolio away from equities and towards cash, a decision that will harm your portfolio returns. Going by the logic of asset allocation, you should, in fact, invest more in the equity market when it is down.
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