Worried about the current market upheaves? Are you fearing losing out all your money in mutual fund investments and planning to withdraw all your units? If you have made a final call, there’s something we need you to reconsider. Mutual fund investments may be subject to market risk, but that doesn’t mean you will fatefully lose all your investment money. Mutual fund investments offer two options – lumpsum and SIP. If you have surplus cash parked which you wish to put to better use, you may consider going for a lumpsum payment option. In lumpsum payment, the investor pays the entire investment amount at the beginning of the investment cycle.
But if you have a long term goal to achieve and wish to invest regularly in mutual funds for a long period of time, you may consider opting for SIP. Systematic Investment Plan or SIP is a systematic approach where one can pay their mutual fund investment amounts at regular investments in an easy and hassle free manner. All an individual needs to do is instruct his/her bank, and every month a fixed amount shall be debited and transferred to the mutual fund account.
So if you are worried about the current market upheaval and considering stopping your SIP investments, here is why you shouldn’t:
Power of compounding
With a systematic investment approach like SIP, if one remains invested in the long run, they can benefit from compounding. Compounding in mutual funds is nothing but the interest earned on interests and profits earned on profits. Over a period of time, a small SIP amount stands a chance of turning into a large corpus. But if you wish to see this happen and benefit from compounding, you need to stay committed to your investments and hence, shouldn’t stop your SIP midway. If you are new to investing, you can also take the help of online SIP calculator to help you understand how much you might be able to profit if you invest regularly.
SIP can beat market inflation
Remember that investment held in the long run also stands a chance of beating market inflation. But if you withdraw your investments prematurely, this may not only affect the overall performance of your mutual fund, but you might even lose out on your initial investments. Hence, during volatile market conditions, it is advisable that instead of abruptly stopping your SIP, you better continue investing. This way, you not only remain committed towards your investments but also stand a chance of beating market inflation.
SIP inculcates the discipline of regular investing
When you start a mutual fund SIP, every month on a fixed date, a predetermined amount gets deducted from your bank account and gets transferred to your mutual fund. Thus if you continue investing in mutual funds via SIP, you are not only investing regularly but inculcating the habit of disciplinary investing. Giving your investments a disciplinary approach is the key to successful investing, and if you stop your SIP investments, this may impact your savings.
SIP might help you fulfill long term goals
SIP is a powerful investment tool that holds the potential to help investors reach long term goals. That’s because SIP investments carry the potential to beat market inflation and benefit from compounding only if the investors continue investing until their investment objective is met. But if you leave your investments midway and withdraw your units, you may lose out on several benefits which SIP investments offer. So if you want to increase your chances of fulfilling your ultimate financial goal, you need to stay committed to your investment and refrain from prematurely withdrawing your mutual fund investments. Long term investments are also considered to carry less amount of risk and might help you get closer to your ultimate financial goal.
Mutual fund investments via SIP can be one way to meet long term financial goals, but remember that these funds invest in equity and other money market instruments, thus carrying a certain amount of risk. So before making any investment, it is advisable that you keep your investment objective and risk appetite in mind so that you can make an informed investment decision.