Things to know before redeeming your SIP investments

Building a commendable corpus is not an easy task. The SIP investments investors started three years ago to make the down payment of a luxury car can be spent on a short international vacation or to buy an OLED TV. However, to fulfil these short term goals investors must not turn a blind eye on their long term goals which requires systematic and disciplinary investing. If you are investing in mutual funds via SIP, there can be several reasons which may force you to stop or redeem your SIP investments. It can be anything, exigency, market volatility but before redeeming your invested sum, investors must understand the consequences that they may have to face.

Investors may lose out on opportunity to earn better capital appreciation

Usually, people redeem their SIP sum either because the markets are far more volatile than usual. The biggest mistake which investors do is they exit from the SIP investments when the markets are volatile. One must avoid doing so as equity markets are naturally volatile, and investors can actually minimize their investment risk if they continue investing for the long haul. Redeeming your SIP investments in volatile markets doesn’t make sense because your portfolio must have already faced losses.

Some investors are impatient with their money and expect higher returns in a shorter span of time. One cannot equity investments to deliver higher returns over the short term. Equity mutual funds do hold the potential to generate better risk-adjusted returns and are known for having a high risk returns trade-off.

Lose out on rupee cost averaging

If you have decided to redeem your SIP investments midway do remember that you are missing out on rupee cost averaging. Rupee cost averaging minimizes the average cost of purchase of units over time. We have already established that equity markets are unpredictable and most of the times they are down than up. The monthly SIP sum may remain stagnant but volatile markets will ensure that investors receive more units. That’s because when the NAV is low, investors will automatically receive more units. Over the long term, the average cost of purchase becomes low as investors receive more units. This is referred to as rupee cost averaging, an investment technique which works in favor of investors only if they continue investing in mutual funds via SIP for the long run. Do understand this before redeeming your SIP investments.

Have you achieved your investment objective?

The reason most investors start a SIP in mutual funds is so that they can adapt a step by step investment approach to gradually get closer to their financial goals. Before redeeming their SIP, investments investors must ensure that their investment objective is accomplished. If the fund which you have invested in hasn’t performance over the past year and a half, then you may consider remaining invested rather than redeeming the accumulated sum. In such a scenario what investors can do is that they can switch to a fund which has been a better performer among its peers and when the underperforming fund gains its momentum, they can either redeem the accumulated corpus or restart the SIP.

When working with mutual funds, it is essential for investors to give their investments their strategic approach. Doing a routine hygiene check up of your mutual fund investments every six months will gives investors a better understanding about the scheme and whether the fund still holds the potential to help them with their goals.

Redeeming your sum accumulated through SIP can be tempting. But if you want to make the most out of the sum invested, make sure that you continue investing for the long haul.

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