SIP during market crash: Should you stop your SIPs during a market fall? | Value Research Is it a good idea to stop your SIPs during stock market crashes? Let’s see, with the help of an example, what you might be missing out on if you stop your SIPs in the bear phases of the market.
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Should you stop your SIPs during a market fall?

Let's see, with an example, what you might be missing out on if you stop your SIPs in the bear phases of the market

Investors tend to invest more in bull markets when the stock prices have reached their highs. They often get scared during a market fall and stop their SIPs. Confused and anxious, one of our subscribers has sent us an email asking if they should continue their SIPs in the ongoing market fall and if it will benefit them.

We must not stop our investments when the market has fallen. It is natural to get anxious seeing your money fall in value, but one must not stop investing in equities during the market fall. The ongoing downturn is yet another opportunity to improve your returns and not the time to run away, but to continue investing.

SIPs should be continued irrespective of how the market is performing, be it an up phase or a downward phase. In fact, all those who are in the accumulation phase should be happy if the market falls. A market fall will mean a lower net asset value (NAV) of your equity fund, which results in you, an investor, purchasing a higher number of units. So it is like buying something at a cheaper price; the value of which will later increase.

Look at the chart above where we illustrated the same using the NAVs of an index fund tracking Sensex (HDFC Index Fund - S&P BSE Sensex Plan). Assuming someone started doing an SIP of Rs 1 lakh on the 10th of every month beginning this year.

As you would notice in the graph, the NAV fell from Rs 542 to Rs 529 from January to February and so the number of units purchased increased. The same can be witnessed when the NAV fell further from February to March and April to May.

Likewise, when it went up from Rs 498 to Rs 529 from March to April, the number of units decreased. If one continues to buy only during the up phase, they will not be able to make profits because the investment is available cheap and they are actually not buying it.

Also, you see, your average cost of purchase (NAV) has come out Rs 513 over the last six months. Now imagine someone investing a lump sum at the beginning of January. He would have then bought at a price of Rs 542 which is much higher.

Does this mean in order to invest you must wait for the market to correct? Not necessarily, because you don't know when the market might correct. The right thing is to continue investing through all phases, be it a bull phase or a bear phase. Also, investing for a long period of time averages your cost of purchase. Don't make the mistake of not investing during the market corrections, you will miss out on purchasing your investment at a cheaper price and thereby adding some extra units to your kitty.

Suggested read: Don't stop now


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