The way market is behaving since last six months, most of us with running SIP’s, have this question, what to do next? Continue, Stop, Reduce or Increase SIP?
When we start an equity SIP, our calculation is based on the long term goal allocation & not the short term impact. Logic of SIP is based on two facts:
- Monthly Savings: where based on cash-flow, savings are parked in the allocated equity fund, else same will remain in the bank savings account (earning just 4/6%) till the time one decides, or best, will get consumed in some lifestyle purchase.
- Cost Averaging: idea is simple, no one can predict the market, therefore the best time-tested philosophy, is to make the best out of the market, i.e. to follow a disciplined approach on monthly investment, irrespective of the market movement (ups & downs of the market), and average out the cost, by buying at all levels.
In case your Goal is nearing, within 12 to 18 months, one should consider reducing or shifting major allocation towards conservative assets. Its recommended to speak & consult your advisor, before stepping or taking the final decision.
Reduce or Increase SIP allocation; one should desist making impulsive decision based on market swings and act like a cowboy. Again, its recommended to speak & consult your advisor on your rationale.
But if your cash-flow permits, keep on increasing your SIP, not because of the market swings, but an exercise, which one should consider every year, towards increasing SIP. Another way to increase, is to link the increase with the increase in income levels.
SIP has created more wealth with people across the world, than the Timing-the-market Cowboy’s, who would have made mediocre returns. Only problem, we don’t analyse, but get to hear more from the cowboys.