Why stopping mutual fund SIPs when stock market falls can jeopardise your financial goals

Fear has returned to Dalal Street. Caught in a perfect storm of weak macroeconomic numbers, the IL&FS crisis and fear of more defaults, equity markets have retreated more than 15% from their all-time high levels achieved in the last week of August. The 806-point drop in the Sensex on 4 October was the fifth biggest single day loss registered by the BSE benchmark in the past five years. In Mumbai, newbie investor Rashmi Rajagopal is feeling jittery about her portfolio of equity funds. She started investing in equity funds about a year ago. “My portfolio grew handsomely till last month, but is now in the red. Frankly, I don’t know whether I should stop my SIPs, withdraw my money or continue investing,” says the 44-year-old marketing manager. It’s a dilemma small investors like Rajagopal face every time the markets tumble. Unfortunately, they usually end up making the wrong choices. Some stop their SIPs in equity funds while others redeem their investments to avoid further losses. “Investors who started SIPs this year will obviously be in the red. But if they redeem now, they will turn temporary losses into permanent ones,” cautions Raj Khosla, Managing Director, MyMoneyMantra. Market timing is a myth Volatility is inherent to equities. It is practically impossible to predict how markets will behave on a certain day. ET Wealth back-tested to see whether mutual fund investors should try to time the market by getting out before they crash. An investor who started SIPs in a diversified equity fund five years ago and continued investing irrespective of market movements would have earned a return of 10.5%. But an investor who managed to avoid the 10 biggest falls in the Sensex by getting out a day before the crash would have earned 13.8% returns.

Courtesy By: //economictimes.indiatimes.com/articleshow/66095696.cms?utm_source=contentofinterest&utm_medium=text&utm_campaign=cppst

Date: 2018-10-10 10:22:42