As every goal comes with its own cost, prudent financial planning is important for achieving the goal.

By Ravi Gopalakrishnan

Every goal and every dream of yours should have a definite date and a financial plan for achieving the same. Investments in the equity markets through Systematic Investment Plans (SIP) over a long time period is the recommended solution for helping you realise your dreams and financial goals. We all have specific goals which we aim to achieve at various stages of our lives, such as buying a car, going on an international vacation or buying our dream house.

As every goal comes with its own cost, prudent financial planning is important for achieving the goal. Even if your goal is creating a corpus over a long time, sustained SIP investing may help you create this corpus. SIP is truly one of the tools for long-term wealth creation.

The Covid-19 pandemic has deeply impacted investor sentiments worldwide. The ratio of discontinued SIPs to new SIP reached a record high of 81% in May 2020, according to data from Association of Mutual Funds in India (AMFI). Against a total of 6.5 lakh SIPs discontinued, around 8.1 lakh new SIPs were registered. This shows that investors are keeping their faith in SIPs as one of the dependable and continuous investment options.

What should you do in these challenging times?

The volatile market conditions precipitated by the Covid-19 pandemic have affected stock markets around the world including Indian markets. In these tough times, the first question which comes to a SIP investor’s mind is “Should I continue, pause or completely stop my SIP?” As you are aware, some volatility is a part of every market, and it is this volatility which gives you an opportunity to lower the purchase cost of investments with rupee cost averaging; where more units of a particular fund are purchased at lower market levels.

While we perfectly understand your justified concern about the future of your equity investments in the wake of the current Covid-19 pandemic, we advise against any knee-jerk reaction with respect to your SIP investments. Unless your financial circumstances have drastically changed, we recommend that you stick to your investment strategy even in these uncertain times.

Options available
Your decision of not stopping your SIP in these challenging times reflects your maturity as an investor and may help in achieving your goals and dreams. Instead of stopping your SIP, we recommend continuing it with any of the following modifications:

• Reduce your SIP amount as per your reworked cash flow situation
• Change your payment frequency from monthly to quarterly

In a situation where you feel that diverting investment funds towards your SIP instalments for the next three months will not be possible, we suggest that you temporarily pause your SIP and continue it later as the financial situation improves. Staying invested in these times will help you participate in the upside when the markets gradually start recovering.

We believe your goals should not change with a change in the market situation. We expect the current market scenario to improve in the next two-three quarters and both, life and the economy, will slowly begin getting back to normal. In these challenging times, it would be prudent to hold on to your investments, keep the faith and continue to invest via SIPs.

The writer is head equities, Principal Asset Management Pvt Ltd