After a long bull run, the Indian stock market is now showing a downward trend, with the Sensex and Nifty falling about 10 per cent from their all-time highs. Many young investors, who may have never experienced a bear market or a prolonged period of sluggishness on Dalal Street, may now have questions on their minds. One common concern is whether they should stop their Systematic Investment Plan (SIP) if the stock market continues to decline, or if they should keep it going.
Should You Continue SIP in a Falling Market?
Whether you should continue SIP in a falling market depends on your investment goals. Are you investing for the short-term, mid-term, or long-term? Most people invest in SIPs with a long-term goal, often for retirement. However, some invest in short-term plans, like saving for a trip at the end of the year. If you’re investing for the near term, redeeming your SIP might be a better option, as your investment value could decline in the short run.
Some people use SIP for mid-term goals, like saving for their own or a sibling’s marriage. Others invest intending to purchase a house or property. If you’re investing with a mid-term goal, the situation can be more complicated. If you’re close to completing a five-year SIP, you can redeem it. However, if you’re still in the early stages, you should continue your SIP.
Benefits of Continuing a Long-Term SIP
If you’re investing for the long term, such as for retirement, you should continue your SIP even during a market downturn. Continuing your SIP in a bear market offers more benefits, as you buy more units at a lower price. If your mutual fund has purchased units at a higher price, this strategy helps average the cost, which will benefit you in the long run.
What is a systematic investment plan?
SIP stands for Systematic Investment Plan. Many people are not aware of the ups and downs of the stock market. Mutual fund houses offer systematic investment plans for them. In this, you have to deposit a fixed amount every month. Then your fund house buys shares of different companies with that money. When those shares rise, you get its benefit in the form of better returns. You can start investing in mutual funds from as little as Rs 100 per month.
Disclaimer: For any financial investment anywhere on your responsibility, Times Bull will not be responsible for it.