Along with increased inflows, mutual funds have also seen a spike in redemptions. Data from the Association of Mutual Funds in India shows that investors sold equity fund holdings worth Rs 1.9 lakh crore in 2017—45% higher compared to 2016. Some investors have chosen to book profits entirely while few have even paused their SIPs amid rising valuations. But this could prove harmful in the long run, say experts.
There is a possibility of a correction in the stock market in the near future, which may sour the experience for investors who have enjoyed a good run in their SIPs for the past few years. But taking the money out, anticipating a correction, may rob your portfolio of the compounding benefits on the accumulated corpus, and could even result in a shortfall in your target corpus for specific goals.
Stopping SIPs may jeopardise your goals
Investing only when the market is cheap will substantially cut your final corpus
Over the past 10 years, a regular monthly investment of Rs 5,000 in ICICI Prudential Value Discovery Fund would have helped you amass a corpus of Rs 17.98 lakh. But stopping the SIP midway, owing to stretched valuations, would have yielded a much smaller kitty of Rs 13.8 lakh. "Timing your SIP only gives you an illusion of being in control. In reality, you end up putting less money at work and may even miss out on a couple of more years of higher return," says experts. Unless a critical financial goal is approaching, leave your money to work.
A correction, whenever it happens, should in fact be used to your advantage. "Beneficial averaging happens when markets correct. That's the time to show conviction by sticking to your SIP," says experts. Investors who stay invested during turbulent times ultimately gain when the markets rebound. "Investors need to keep in mind that in volatility lies the opportunity”.