According to some mutual fund advisors, the current turmoil in the stock market is scaring many mutual fund investors away from equity mutual fund schemes, especially those who started investing in equity mutual funds in the last few years. Since these mutual fund investors have never experienced a scary volatile market in their life, they are asking their advisors whether they should stop their Systematic Investment Plan (SIP) now and restart it once the market stabilises at a certain level.
Well, that would be a bad idea. Chew on these facts: Were you not worried a few months ago that the market has run up so much and it may fall anytime soon? Didn’t you contemplate pulling out money from the market?
Well, think of it: you were thinking of pulling out money from your equity mutual fund investments because the market was at stratospheric levels. Now, you are thinking of pulling out money from equity mutual fund investments because the market has fallen or has been falling continuously.
Doesn’t it strike odd to you? If you were scared of higher-levels, shouldn’t you be happy that the market has fallen? Shouldn’t you be buying more, now?
Consider this scenario: you have been eyeing a gown or suit on display for the last few weeks. You liked it very much, but it was beyond your budget. One week, you suddenly notice that the item is available on 50 per cent discount. What would you do? You happily buy the article, right?
If so, why you are not behaving in the same way when the market is down? In fact, when the market is down, you are indeed buying mutual fund units cheaply. In fact, that is the whole idea behind investing regularly or via Systematic Investment Plans or SIPs.
You buy more units when the market is down, and you buy less units when the market is on an upward march. This will help you to average your purchase cost and amass more units over a long period. This is what helps you to maximise wealth in the long run.
Simply put, don’t commit the mistake of stopping your SIP when the market is going through a rough phase. Remind yourself that this is your chance of buying mutual fund units cheap and maximise your wealth over a long period and continue with your investment programme.