How to Continue SIPs Even During Volatility

SIP is a popular investment approach used by both novice and seasoned investors. SIPs are an affordable and flexible investment strategy that allows investors to set the SIP amount and its frequency, depending on their preference.

Let’s explore the advantages and risks of continuing your mutual fund SIP during high market volatility.

What Is SIP in Mutual Funds?

SIP refers to the technique of investing in mutual funds. It enables people to invest a certain amount of money at fixed intervals, as per their investment preference.

Investing in equity mutual funds is considered risky as their performance is linked to inherently volatile equity markets.

Advantages of Investing in Mutual Funds Through SIP

The following are the advantages of investing in mutual funds through SIP during high market volatility.

Rupee Cost Averaging

Continuing your mutual fund SIPs during market volatility increases the chances of buying more units when the NAV is lower and fewer units when it is high. Investing in volatile periods can help reduce the average cost of the units you purchase.

No Need to Time the Market

Regular and continuous SIPs reduce the need to predict when the market will move upwards or downwards and help avoid making sudden emotional and impulsive decisions based on short-term market movements.

Behavioral Discipline

Automated SIP payments in mutual funds can help build and maintain an investing discipline. This can make it easier for investors to stay focused on long-term financial goals during periods of market volatility.

Accumulation for Rebound

When the market is declining, the same SIP amount can buy more mutual fund units since prices of the underlying assets may be lower. And when the market later recovers, these additional units bought during market downturns can contribute to your portfolio’s long-term growth.

Risks of Continuing SIPs in Mutual Funds During Volatility

The following are the risks of continuing SIPs in mutual funds during high volatility in the market.

Temporary Portfolio Value Declines

During high volatility and sharp market downturns, the NAV of your mutual fund units may decline significantly. Watching your portfolio turn red can lead to stress and panic, while continued SIP payments may mean buying units without any guarantee of the market or sector recovering soon.

Extended Cash Flow and Liquidity Strain

Regular SIP payments take money from your bank account periodically and invest it in the mutual fund. If you’re facing financial constraints or have unstable income, these SIP payments can put pressure on your monthly budget and liquidity.

Value Trapping in Underperforming Funds

Some mutual funds may continue to underperform even after the market volatility or sector downturns are over. If you continue to invest without reviewing the mutual fund performance, you may continue investing in funds that underperform or no longer align with your financial goals.

FAQs

Can I continue my SIP during market volatility?

Yes, you can continue your mutual fund SIPs during market volatility.

Why does the stock market become volatile?

Stock markets are inherently volatile and experience temporary periods of high volatility. Volatility can be due to major economic news, global events, company results, and other factors.

Does market volatility affect my SIP investment?

Yes, market volatility affects the NAV of your mutual fund, but rupee-cost averaging can result in buying more units when prices are lower and fewer units when prices are higher.

Can SIPs be stopped during a market fall?

Yes, you can choose to pause or stop your mutual fund SIPs during a market fall, depending on your investment plan and financial situation.