Should You Stop SIPs During Coronavirus?

Should You Stop SIPs During Coronavirus?

Stock markets in India have crashed due to coronavirus fears. BSE Sensex and Nifty are down for several trading sessions. There is fear and panic in the air as cities across the world are in lockdown. In all this comes the question. What to do with your mutual funds?

There is a general temptation to pump money into mutual funds as markets reach multi-year lows. There is a bad idea. Continue mutual fund SIPs and start new ones to become rich.

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See Also: 7 Tips to Manage Money During Coronavirus

Should You Stop SIPs During Coronavirus?

What is SIP?

Systematic Investment Plan or SIP is a method of investing in mutual funds. You invest a fixed sum regularly say once each week, month or quarter in a mutual fund scheme of choice. You can start SIP at Rs 100 a month.

Benefits of SIP

Power of Compounding

Compounding Returns are return on returns. You earn returns not just on the principal but also on the gains from the principal amount. Your money grows with time.

Rupee Cost Averaging

If you buy mutual fund units when stock markets crash you get more number of units. This is an excellent time to increase mutual fund units and avoid timing the markets.

SIP Calculator

You can calculate SIP returns using IndianMoney investment calculator. You have a yearly investment of Rs 60,000 made for 20 years with an expected rate of return of 12%. It grows to Rs 49 Lakhs at the end of the time period.

Should you stop SIPs?

The rule is simple. Don’t panic and continue with SIP investments. Studies have shown that SIP investments are great for people who don’t have the time and resources/knowledge to invest on their own.

SIP encourages disciplined investing as you are forced to invest regularly to achieve financial goals. Rupee cost averaging brings down the risk in investment and you get more units when stock markets are down. You get to enjoy better returns when markets bounce back. SIPs are designed for the long-term and are engines of wealth.

Fall in stock markets are part of the game of investing. SIPs help reduce the average cost of acquisition and there’s no need to time the market. You get more units when the markets are down and an exit means the loss of an opportunity to accumulate wealth.

To enjoy returns from equity, stay invested for at least 5 years. Long is the name of the game. Don’t stop SIPs until you achieve financial goals.

Invest in SIPs successfully

1. Analyze mutual fund performance:

Well, keep an eye on performance of your mutual fund scheme. Replace all non-performers in the mutual fund portfolio. Check mutual fund house quality, fund manager performance and objective of the mutual fund.

2. Don’t start mutual fund SIPs in similar schemes:

Well, it’s always a good idea to start SIPs in different schemes. This would achieve diversification in the portfolio.

3. Don’t look only at star rated funds

Most people invest in mutual funds based on star ratings. Ratings show past performance and are not an indicator of future performance.

See Also: 5 Golden Rules of Investment

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