If you’ve recently checked your investment app and felt a sense of anxiety, you’re not alone. Observing your SIP (Systematic Investment Plan) portfolio showing losses can lead anyone to reconsider their investment strategy. A significant number of investors appear to be responding to this feeling, and the newest statistics clearly illustrate this trend.
For the first time in nearly a year, the number of SIPs that were terminated exceeded the number that were initiated. Approximately 53.38 lakh SIPs were closed or matured last month, while merely 52.82 lakh new ones were established. These figures indicate a change in investor behavior and an increasing unease with market fluctuations.
REASONS INVESTORS ARE TAKING A BREAK
Market fluctuations are a regular occurrence, but the recent volatility has left many investors feeling apprehensive. Indeed, returns from one-year and even two-year SIPs have dipped into negative territory for various funds, which can be disheartening.
In a post on LinkedIn, certified financial planner and personal finance specialist Ritesh Sabharwal articulates the prevailing sentiment: “It feels wrong to keep investing when your portfolio is in the red.”
That sentiment is precisely why numerous investors are opting to halt or suspend their SIPs. However, experts suggest that this response might be more emotionally driven than rational.
THE REASONING FOR REMAINING INVESTED
SIPs are structured to be most effective during uncertain market conditions. The fundamental principle is known as rupee cost averaging.
Sabharwal describes it succinctly: “When the market drops, your Rs 10,000 SIP purchases more units than it would have previously.”
This implies that when prices decrease, you acquire more units for the same investment. When the markets rebound—as they typically do—those additional units contribute to enhancing your returns.
He further explains, “Halting your SIP during a downturn is akin to leaving just before it truly benefits you.”
To illustrate, I recall a time when the conflict in West Asia caused a sudden market plunge. A colleague of mine experienced a decline of nearly Rs 10,000 in his portfolio within a week. It was alarming, and the instinct was to cease investing. However, he chose to continue.
He remained invested because, as he stated, SIPs are designed for scenarios like this. As the market fell, his consistent investment began acquiring more units. It wasn’t a pleasant experience at the time—particularly with everything in decline—but it discreetly improved his long-term averages.
ANALYZING THE NUMBERS
To grasp this concept better, consider a straightforward example. When markets are high, your SIP secures fewer units. Conversely, when markets decline, the same SIP amount acquires more units at a decreased price.
As Sabharwal points out, the recovery phase is where these additional units start to appreciate in value. This is why maintaining investments during downturns can actually enhance long-term returns.
ARE THERE MORE STRATEGIC WAYS TO INVEST IN VOLATILE MARKETS?
For those still feeling uncertain, there are methods to make SIP investing more adaptable.
Sabharwal recommends diversifying investments through weekly SIPs instead of monthly ones. This approach provides more entry points into the market, aiding in further cost averaging.
An alternative is implementing a Systematic Transfer Plan (STP), where a lump sum is placed in a safer fund and gradually transitioned into equities. This strategy allows for capturing market dips without committing all funds at once.
THE IMPORTANCE OF PATIENCE IN SIPs
One of the most significant errors investors make is exiting prematurely. SIPs are not intended for quick profits. They require time to navigate a complete market cycle.
Sabharwal emphasizes, “SIPs need a minimum of 12–18 months to fully absorb a market cycle.”
Stopping midway, especially during a downturn, often results in missing out on eventual recovery.
A WARNING SIGN FOR INVESTORS
The fact that the SIP stoppage ratio has surpassed 100% serves as a strong signal of investor reactions. It also underscores a common trend—pulling out during market declines.
Sabharwal succinctly summarizes: “This is when you stay invested. Not when you exit.”
In straightforward terms, the current trend may signify fear, but for long-term investors, it serves as a reminder to persevere.