As soon as markets face uncertainty, investors start having doubts about their ongoing mutual fund investments, especially systematic investment plans (SIP). The investors are often torn between various thoughts. The dilemmas range from whether to continue with the SIP investment or pause them or stop them altogether. This article will provide you with a guide on how you can play smart with your SIP investments during a stock market crash.
To help investors tackle various concerns and squeeze as much as they can out of their SIP investments, fund houses and investment platforms keep introducing SIP variants.
Rewiring the outflow
Under a traditional SIP, a fixed amount is deducted from the investor’s bank account at periodic intervals. This money is further invested in the desired scheme for a predetermined period of time. In a conventional SIP, the SIP flow remains constant regardless of the fluctuations in the market.
For those investors who are uncomfortable with this system, new-age tools provide enhancement to the structure of the SIP. This permits investors to modify their traditional SIPs and be responsive to market volatility and fluctuations. To attract more investors to mutual funds, fund houses constantly strive to add new features to the vanilla SIP option over the years. One such feature is the introduction of Smart SIP that generates signals that guide you when to begin with your SIP investment, if you should continue with the existing SIP plan, double the investment amount, or skip a particular month based on market fluctuations.
Try to simplify and not complicate
The argument over here is that by investing more or less at different points of time, an investor can optimise their SIP investments and get the most out of their mutual fund investments. Essentially these ‘enhanced’ and ‘smart’ SIPs add an element of market timing to the conventional structure of SIPs.
However, one must note that some of these turn out to be counter-prouductive in the long run. For instance, a flexi SIP might leave you under-exposed to the market, putting lesser money to invest to achieve your financial goals. While there is huge potential for significant returns in Flexi SIP, the magnitude of returns could be different from that of a comparable SIP option. While, a Flexi SIP might seem like a good investment option theoretically, in reality, it could result in lesser savings in the long run if not enough money is invested regularly due to expensive valuations.
While tweaking SIPs might bring out really good benefits over a period of time, mutual fund experts urge investors to maintain investing discipline. SIP tool is originally meant to simplify mutual fund investments and assist disciplined investing for those endowed with recurring monthly income or salary. As the cash flows under a modified SIP are unpredictable at most times, it is ideal for those investors who have sufficient liquidity at all times. Thus, salaried individuals with inadequate savings would be better off sticking to a plain vanilla strategy. Advisors recommend that investors should opt for SIP top-ups at annual intervals only to align their investible corpus with their rising income levels.
Irrespective of the SIP option you choose for your investment portfolio, you can use an SIP calculator to understand your future returns on the investments. Happy investing!