Sunday, January 20, 2019

Should I stop my SIP ...what you suggest


My Sip is running at loss and I am heading for redemption or stopping it from continuing any further. This is one of the most common things became thought by an investor. Notional loss and over expectation creates the miss-selling concepts in every financial product. Practically there is no wrong product but there are only wrong words behind pitching the product or explaining the same while the sales are closed. Every investor has just two ambitions and classified under two categories broadly 1) Investor who want something above the Fixed Deposit rate of interest to grow the wealth and 2) those who just invest to make short term gains. I am not going to discuss asset allocation or risk profiling or objective of investments. I am here to enlighten in-depth reason beyond these financial jargons.

Every financial advisor is in the race to beat the Fixed Deposit rate of return. Well, one must know and understand that every investment asset class and process has different destinations and not the same one. This question of should I continue my SIP rises only when an investment has been made blindly based on short term illusion of gains from the market.

Products are never wrong only the presentation and adaptability of the product creates the mis-selling. Rather I would say that wrong understanding about the product leads to the problem where an investor thinks about stopping his SIP.

SIP is one of the most efficient ways of creating long term wealth provided proper risk analysis and understanding of the risk was clear to the investor. It’s the responsibility of the investor to think and decide about these two aspects.
Post demonetization there has been a stupendous growth in the stock market and hence investments have also increased. Every investor started doing SIP and increased their SIP inflows. But many of the investors thought or rather understood that through SIP one will make a substantial gain in the short term.  The reason for doing SIP was more to make short term profits disguised under the name of doing Lumsum investments and splitting the risk.  The euphoria of the market attracts investors to do investments but one must analyze what type of returns one is looking ahead and the broader vision of investing.

During 2017-18 the industry mopped up close to Rs.67,190 crore as against Rs.43,921 crore in FY 2016-17 through SIPs, the massive growth of 53%. This 53% jump was based on short term focused return mindset. The monthly inflows in mutual funds through SIPs reached an all-time high at Rs.7,100 crore in March 2018. In April 2017, the industry received Rs.2,784 crore through SIPs.

Now when the investor did not get the return as expected from SIP in short term then bell of stopping SIP will ring in his mind. In terms of SIP accounts, the industry had 2.11 crore active SIP accounts in March 2018 compared to 1.35 crore in the corresponding period last year. This significant jump speaks that how many investors came up into investing post demonetization and why an investor today is under dilemma.  

The main thing which was ignored or did not come out does you really need the SIP and what type of returns you are looking over from the current market levels. If you as an investor have done SIP with the mind of making short term gains then it’s a wrong approach.  SIP goes through various phases of the market and then it makes wealth building tool. At the same time re-balancing of SIP, investment is an important aspect.

This type of question comes in the mind when an investment has been done with the objective of short term gains and not on the proper analysis of the requirement of investments. SIP cannot meet all type of investment objective. Yes, the truth is loud and clear. In many places, llump suminvestments over the period of time frame can fetch a good return based on the investment objective. SIP has replaced the Lumsum objective and hence expectation of short term gains from SIP has increased. From 2016 November to February 2018 an investor should have made significant returns on the lump sum investments. Provide the same investments have been redeemed and the profits have been booked. In the same time, an SIP has different investment pattern.

 Before you start any SIP you should ask your self
·        Do I need to start this new SIP?
·        Does this SIP meet my objective of return in the long term?
·        Do am I investing based on short term Euphoria?
·        Can I continue this SIP commitment and for how long?
·        Did I do rebalancing of my previous SIP investments?]


There is saying look before you leap. Look before you commit any investment.   Now coming to the conclsuion ,if the SIP commitment seems to be trouble then stop it and take a short term pause. If you are okay with the SIP commitment then continue it with  objective. 

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