When Systematic Investment Plan can harm your portfolio?

Systematic Investment Plan

When Systematic Investment Plan(SIP) can harm your portfolio?: Systematic Investment Plan (SIP) is an investment route which is offered by Mutual Funds wherein one can invest a fixed amount in any mutual fund scheme at regular intervals– say once a month or once a quarter, instead of making a lump-sum investment. The installment amount could be as little as INR 500 a month and is quite similar to a recurring deposit. It’s convenient as you can give your bank standing instructions to debit the amount every month.

How SIP gained Popularity

SIP has gained much popularity among Indian MF investors, because it helps in investing in a disciplined manner without worrying about market volatility and timing the market. Systematic Investment Plans offered by Mutual Funds are easily the best way to enter into the world of investments for the long term.

Inflows through Systematic Investment Plan

As per data from the Association of Mutual Funds in India (AMFI) the inflows from SIPs at 8,300 crore in July 2019 and the industry added 9.54 lakh SIP accounts on an average each month during the financial year 2019-20. But here we want to discuss when one should stop the investment through SIP ie Systematic Investment Plan.

When to Check Systematic Investment Plan

  • Stop your SIP when your goal of investment is nearer. Every investment have some goal associated with it. The same is with the investment through SIP. It should be discontinued at this stage because it eradicates the chance of losing your hard earned and accumulated money.
  • Stop your SIP when it is diverting from your goal. If the outcome of your investment is skewing then it is time to rethink about the SIP plan. One should be very alert when directly or indirectly investing in the stock market and keep focus on asset allocation.
  • Stop the SIP when the fund in which you have invested has been underperforming. SIPs make it operationally simpler for you to stay with your investments but it may also lead to carelessness in evaluating the performance of their funds.  Periodic monitoring of fund is required.
  • Stop the SIP when the risk and return of the investment is varying. If the fund moves up beyond your risk appetite you must stop the fund SIP as soon as possible.
  • There comes time in life when your financial condition becomes worse. If the financial condition become weak then you can stop your SIP.

Concluding Words

SIP is a facility that helps you do better with your investments in terms of staying with an investment plan without getting distracted by current market sentiments. But you should evaluate it periodically and take a call on how to use it so that it can be adjusted to reflect your current situation and work in your favour.