“Do not let the market fluctuations affect you. Do not stop your SIP”, suggested Rohan.
To which Rahul countered, “There is no value left in the market and returns look low. I think the best way would be to stop the SIP for now and resume when the market corrects.”
Rahul turned a deaf ear to Rohan’s advice and discontinued his SIP during the market crash in November 2008. On the other hand, Rohan continued his investment, keeping himself unaffected by the market movements. This is what their returns look like.
Though times have changed and we have come a long way, a lot of us still think like Rahul. We make the classic mistake of timing our SIP with the market.
Undoubtedly, this strategy is more damaging than the market crashing. Above all, it defeats the purpose of investing with an SIP in the first place. An SIP is not about timing the market but time in the market. A Systematic Investment Plan shields you against market fluctuations through a systematic approach. It even averages out the cost in the longer run. Here’s how!
As your SIP amount is constant and regular, more units are bought when the market price of certain shares is low and lesser units are bought when it is high. Due to this mechanism, the investment risk is spread across market movements.
So your focus should be on staying invested for a longer time in the market rather than timing the market.
To sum it up, if you’ve stuck to the investment fundamentals, are sure that you picked the right fund, and not followed the herd when it came to decision-making, there is no reason for you to worry about the market movements.