Why cancelling your SIP prematurely is a bad idea?

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SIP is probably the best way for any individual to save and invest regularly. To achieve long term goals, investors can opt for a Systematic Investment Plan. Through SIP, one can give their investments a strategic step by step approach and gradually build a commendable corpus over the long haul. The problem most investors face is when they are in the middle of their investment journey and aren’t as enthused as they were when they started the journey. They may even stop their SIP investments midway or plan to withdraw all the money they invested so far.

The COVID-19 pandemic which saw markets across the globe crash severely instilled fear in minds of many investors who either cancelled all their current SIPs or redeemed all the mutual fund units to avert further losses. Such decisions which are riddled with human emotion and biasness usually defy the whole purpose of investment. What investors do not realize is that redeeming your investments when the markets are low will only cost them and that it is better to remain invested for the long haul. Because, over the long term markets always normalize and chances of you profiting from your investments are better.

Here are few reasons why investors should not cancel their SIP investments midway –

Any time is a good time to start SIP

A lot of new investors feel that it is important to time the market before entering but the truth is with SIP, you can start investing any time. People feel that they should enter when the markets fall so that they receive more units. However, this investment approach can instill fear of facing losses in investors and they might be hesitant in making fresh investments. Instead investors should understand that SIPs take advantage of falling markets and allots more units when the markets are low. This averages out the cost of purchase which means for the same SIP sum investors will receive more or less units depending on the fluctuating NAV.

Take advantage of professional fund management

Mutual funds are managed by a team of professional fund managers who are actively involved in buying and selling stocks and reshuffling the underlying portfolio of a mutual fund scheme to ensure that the scheme manages to earn profit. Stopping your SIPs will mean that your money will no longer be managed by expert fund managers and you may not be able to benefit from their expertise.

Learn to appreciate your savings

Mutual funds are a pool of professionally managed funds that invest in a diversified portfolio of securities to generate returns. One cannot expect to earn returns overnight with mutual fund investments. This is why most investors set up SIP, an investment approach where they get to save and invest a fixed sum at regular intervals till their investment objective is accomplished. This is an investment journey that should be appreciated and cherished. Investors are getting a chance to witness their small sums snowball into a large corpus with time. Rather than fearing the constant fluctuations in the market investors can inculcate the discipline or systematic and regular investing.

SIP is known to bring power of compounding into effect

Another investment technique which SIP investors can benefit if they remain invested for the long run is power of compounding. To benefit from compounding effect on your invested sum it is advisable to keep investing till your investment objective is accomplished. Compounding in mutual fund terms is the interest earned on the interest which is earned from the principal amount. But if you prematurely withdraw your SIP investments, you may not be able to benefit from the power of compounding.