InvestorQ : Should I stop my SIP given that markets are going to fall in next few months?
Neha Sharma made post

Should I stop my SIP given that markets are going to fall in next few months?

4 years ago

Dear negative-thought bearer, what makes you think so? What’s the source of your information? If it is those thousand WhatsApp forwards, then be rest assured that there’s a very slim chance of the market actually falling.

Please try and understand that no one can really predict which way the market will go. One can only hazard a guess based on the current trends. There’s no way anyone can know everything and be 100% sure that the market will fall in the next 1-2 months. And often, when there are futuristic expectations of a fall, big buyers and sellers position themselves in a manner that can price-in the fall as well.

You and I are retail investors, thus our trading/investing activity doesn’t cause any blip in the entire market scenario. However, with these big players having priced in the fall, chances of them aggressively selling and thus the market falling are very, very sleek.

However, let’s assume the market is, for a fact, going to fall in the next one month. You are investing in the market via SIP, which means that on one particular date your investment amount is debited and units worth that amount are credited in to your account.

For an investor like you, you should be more than okay, if not elated, when the market falls, for it means more units will be added in to your account.

Its simple math: If you have Rs. 100 and the cost of a pen is Rs. 10, then you can buy 10 pens in the amount that you have. Now, if the price of the pen drops from Rs. 10 to Rs. 5, then you will be able to buy 20 pens in the same amount. The point is the same in SIPs as well. The price of the pen is your market level or your NAV, and Rs. 100 is your investment amount.

So, as an investor, you should actually be cheerful when the market falls as more units are being added in your folio.

The only time of concern for you will be when you want to redeem your investment. If the market is in the negative zone, when you want to redeem, it would be ideal to wait it out and let the market rebound to its higher levels so that you can sell your units at a relatively higher price.

Hope this dispels all your worries of what happens to your SIP if the market falls. Stick to your investment and see it generate wealth for you over the long term.