Discontinuing Mutual Fund SIP? 5 Factors To Consider When Making The Decision
Before discontinuing any Systematic Investment Plan, it is advisable to take a deeper look at the market as well as your own financial goals.
Systematic Investment Plans (SIPs) are a popular option if you want to accumulate wealth in the long run. Mutual fund SIP could be a suitable choice for building wealth with consistent investment of a small amount at periodic intervals. The SIP plans offer an opportunity to invest across a wide range of equity and debt instruments.
The SIP investments need a long-term commitment to ensure you can set aside a sum every month for investment. However, many investors can be tempted to discontinue their SIPs due to a variety of factors - low returns, market volatility, or a cash crunch.
If you are planning to stop investing in your SIP, there are some factors you need to look at before making a decision.
Factors To Consider Before Stopping SIP
Your financial goals: If your financial goals have changed or have been completed, then you can discontinue your SIP. If the particular SIP you have invested in is no longer suitable for your financial goals, it might be prudent to end it.
Performance of the fund: If the fund or security is consistently performing below par compared to its peers, you might be in favour of discontinuing it. Look at how your SIP is doing compared to the overall index as well. This can help you figure out if the fund’s downturn is a short-term downturn or a longer slump.
Objectives of the SIP: You should look at the objectives of the fund before making a decision. Sometimes, the fund house may decide to change its objective to secure bigger profits at scale. This might not align with your personal goals or risk portfolio. In this case, you may consider exiting the SIP.
Your investment profile: Take a detailed look at your investment portfolio to check if exiting a fund might tilt your portfolio towards a particular asset class or sector. This can lead to increased financial risk for you. Ensure that your portfolio allocation is diversified to minimise losses.
Stock market trends: Look at long-term market trends and predictions. It could be possible that the particular fund could be undergoing a temporary downward spiral due to unforeseen geopolitical events like conflict or international tariffs. This means that the fund could bounce back in a few months.
Before discontinuing any SIP, it is advisable to take a deeper look at the market, the fund you are investing in and your own financial goals. If a cash crunch is the cause of the existing SIP scheme, you can temporarily pause the investment and resume it later with improvement in your financial conditions.
