Systematic investment plans (SIPs) have witnessed expenential growth among retail investors, according to a recent study by Zerodha Fund House. They account for 20 per cent of the industry’s total assets under management (AUM). The total number of SIP accounts rose from 52.8 million in March 2022 to 93.4 million by July 2024. The amount contributed by SIPs rose from Rs 12,300 crore to Rs 23,300 crore over the same period.
Step-up SIP
No time like now for step up
There is no right or wrong time to step-up SIPs. “It should be done in tandem with the increase in income. By going for the step-up option, you will reach your goals faster,” says Nehal Mota, co-founder and chief executive officer (CEO), Finnovate.
Market conditions should not drive this decision, since SIPs are about letting time work in one’s favour by staying invested for the long term and letting rupee-cost averaging work its magic. “You may step-up anytime provided you do so in keeping with your risk appetite-based asset allocation,” says Abhishek Kumar, a Sebi-registered investment advisor (RIA) and founder, SahajMoney.
Experts also suggest regular portfolio reviews. “Review your portfolio in April or May every year, just before you get the salary increment,” says Manish Mehta, head of sales and marketing, Kotak Mutual Fund.
Kumar cautions that investors should avoid over-stepping, as over-committing to SIPs can strain finances.
When pausing is okay
Sometimes, events like job loss or health and other emergencies affect one’s ability to meet monthly commitments. One may pause SIPs in such a scenario.
Pausing is also okay when valuation indicators flash red. “If you feel the market is overvalued, you may pause equity SIPs and restart when valuations have eased,” says Mota.
One may also pause to meet one’s asset allocation requirement. “If you have achieved your ideal allocation to equities, pause your equity SIPs and redirect fresh money into debt instruments,” says Kumar.
When to stop an SIP
An SIP may be stopped and the corpus redeemed once a financial goal has been achieved. Sometimes, fund-related developments necessitate stoppage. “The fund manager may have changed and the new manager may not meet your criteria. The fund’s performance may not be up to the mark. The fund’s mandate may have changed and may not suit your risk appetite and time horizon,” says Mota.
Myths about SIPs debunked
Myth: SIPs guarantee good returns
Reality: SIPs are subject to market risks. They benefit from rupee cost averaging and compounding but do not eliminate market volatility
Myth: SIPs are for equity investments only
Reality: While they are mostly used with equity mutual funds, they can also be used with debt, hybrid, and other types of funds, depending on the investor’s risk profile and objectives
Myth: SIPs need a long-term commitment.
Reality: SIPs offer flexibility, allowing investors to start, pause, or stop their investments at any time. There’s no strict requirement of a long-term commitment, although staying invested for longer may boost returns
First Published: Sep 03 2024 | 10:38 PM IST
