Is it right to stop your SIP now?

First of all, it is important to understand that a systematic investment plan (SIP) is not subjected to market timing. However, there are many investors who think along the same line and stop their SIPs when the market hits high.

In order to create wealth in the long-term, one needs to invest with discipline and calls for a well-articulated investment plan. People prefer to invest in stocks to earn potential rewards in a short span of time. However, not everyone is lucky enough to tide multi-bagger stocks.

When it comes to investing, equity as an asset class does not consistently work for you. There are times when it will give you negative returns. Hence, here, asset allocation plays a vital role. When you invest in individual stocks, the risk of loss is more as very few would be able to diversify their investments. On top of that, it becomes quite difficult to diversify across different assets such as equity, debt, gold, etc. Further, one wrong investment call can wipe out quite a bit of your capital.

On the flipside, mutual funds are less risky as compared to direct stocks. Every fund house has their own risk management systems that help them to reduce risks. On average, a diversified equity mutual fund holds anywhere between 30 to 50 stocks. This helps them to achieve proper diversification.

Now coming back to SIP, you should not stop your SIPs for sure, unless the fund is not performing as per your needs. In fact, SIPs help you to reduce the overall investment risk. They have an in-built risk management mechanism known as ‘rupee cost averaging’. In rupee cost averaging, you should keep your periodical investment constant and buy fewer units when markets are up and more units when the markets are down. This way, it averages out your investments. Therefore, it is at all not a good idea to stop your SIP without a reason. In fact, the very reason for investing via SIP is that it sets you free from timing the market.