During market falls, it’s natural for investors to worry about their investments. Some panic and make rash decisions while others are unable to make any moves due to indecision. However, one of the common things most who invest in mutual funds do is think of stopping their Systematic Investment Plan (SIP) investment. While it may give you an inflated sense of control, like you are stopping more of your money from being pumped into the market when it has taken a hit, that is not what you should be worrying about.
What to look at during market falls?
When the market takes a hit, it’s your mutual fund corpus that has already accumulated over the years through SIP or lumpsum that you should be focused on and not your current monthly SIP. The reason for this is that your mutual fund investment corpus is a lot more vulnerable to market ups and downs than your SIP simply because it’s a lot larger in amount than your SIP.
Say you have been investing in equity mutual funds through a monthly SIP of Rs 10,000 for the last 10 years. That would mean you have invested about Rs 12 lakh and let’s assume your corpus currently has grown to Rs 23 lakh. Now, if the markets were to fall, by 10%, that would have an impact of only Rs 1,000 on your SIP amount. However, this market fall would have a significantly greater impact on your corpus of Rs 2.3 lakh.
Hence, focusing on all your overall mutual fund portfolio instead of simply your monthly SIP is the need of the hour during market falls. This is not to say that you should continue or stop your SIP investment. That is a call you must take depending on the market situation. However, that should not quite be your first priority.
What to do then?
During market falls, you should consider rebalancing your portfolio. Reducing your equity investments and putting that money towards safer asset classes such as debt is what you should look into. Safe haven assets such as bonds tend to not move in tandem with the stock market. Such assets are not impacted by the same things that affect the stock market and hence they help hedge your overall portfolio’s risk against market volatility.
In fact, rebalancing is not something you should wait to do only when the markets are volatile. When you begin your equity mutual fund investments, you may be focused on accumulating wealth and capital appreciation. But once you have a sizeable corpus, you need to also start thinking about capital protection and look at bonds, debt funds, etc.
SIP investments are a great tool that help meet important financial goals. However, that’s just what an SIP is – a tool. An SIP helps invest in mutual funds and build a corpus and that corpus should not be forgotten when the markets fall. The bottom line is, when the markets take a hit, do look beyond what to do with your SIP and consider your existing portfolio as well.
