Why Continuing SIPs is Crucial for Your Financial Goals

In our financial journey, what we don’t do has an equal, if not a bigger impact on our experience. In times of heightened market volatility, we feel forced to act. Seeing past 6 or 12 SIPs in the last year turn negative in value can have an especially high impact on an investor's mind. In such a scenario, stopping one’s SIPs for a temporary period can be extremely detrimental. Systematic Investment Plans (SIPs) are designed to help investors benefit from the power of compounding and rupee cost averaging. When you stop your SIPs, you miss out on the opportunity to buy more units at lower prices during market downturns, which can significantly impact your long-term returns.

Don’t let temptations tamper your financial journey!

Another critical aspect to consider is the impact on your financial goals. SIPs are often aligned with long-term objectives such as retirement, children's education, or buying a home. Halting your SIPs can delay the achievement of these goals, as the compounding effect is interrupted. The longer your money stays invested, the more the potential to grow, and stopping SIPs can significantly reduce the corpus you accumulate over time. Take this example below:

Below table shows example of two individuals, Mr. A and Mr. B, both started their SIP journey in HDFC Flexi Cap Fund on 1st April 2018. During the beginning of COVID-19, Mr. A paused his SIP for 6 months between April 2020 and October 2020 (driven by fear of COVID-19 impact on markets) while Mr. B continued with his disciplined approach of investing regularly. Here are the results:

Long Term SIPs are key

Interestingly, amongst all SIP investors in our schemes, 82% tend to choose 10 years or more, and 89% have chosen 5 years or more (Source: Internal). Historical experience shows it clearly, that staying invested via SIP for long periods of time tends to lead to wealth creation. For instance, a monthly SIP of Rs10,000 in HDFC Flexi Cap Fund since its inception has become a value of Rs20.39crore, with a total investment of Rs36 Lakhs.

Volatility is a feature, not a bug.

Market volatility is a natural part of investing. Historically, markets have always recovered from downturns, and staying invested through SIPs helps ensure that you are positioned to benefit from the eventual recovery. By stopping SIPs, you may miss out on the potential upside when the market rebounds. Moreover, SIPs instill a disciplined approach to investing. By investing a fixed amount regularly, you avoid the pitfalls of trying to time the market, which is notoriously difficult even for seasoned investors. Stopping SIPs disrupts this discipline and can lead to inconsistent investment habits.

So, what should investors do?

In conclusion, in case you already have well defined objectives and SIPs matching your goals, it may be worthwhile to do nothing. While it may be tempting to stop SIPs during periods of market volatility, doing so can be detrimental to your financial goals. Staying the course and continuing your SIPs can help you navigate market fluctuations and achieve your long-term objectives.

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