Do SIP, Don’t (S)Stop (I)In (P)Panic

Arunditi , aged 28, was rejoicing on her success to have her  two year old SIP folio redeemed and stopped. She had opted SIP for ten year tenure, on advice of a Mutual Fund advisor but chose to withdraw her SIP in plunging markets. She did not mind losing some value right now as she believed that it could have hurt her more if she had remained invested.

Unfortunately, like Arunditi, most of the investors think the same way. As per the latest reports, over one lakh SIP’s per month were cancelled in the year 2011. SIP (Systematic Investment Plans) have now become Stops In Panic as they could not stand against the panic-stricken reactions of investors. SIP concept was introduced to help investors benefit during market crisis but most of the investors are carried away by their own miscalculations.

Arunditi is happier to own a Smartphone now with the redeemed money, although she had initially sworn in to invest it for accomplishing her abroad travel plans. Nevertheless, she is enjoying making calls abroad with that Smartphone now. SIP intends to accomplish long term goals of the investor; but there existence has been reduced to buying a Smartphone or to support month end deficits. In short, amount invested in SIP for goal of buying a car is redeemed at the end of the month to buy fuel for your two-wheeler.

Let’s try to evaluate how Roopa, unlike Arunditi, has been profited by this outright concept of SIP. Roopa, aged 38, had started her career in the year 2000 and had decided to invest as little as Rs. 2000 in a large and mid-cap fund through SIP every month. She is successfully continuing her SIP and her consistent approach towards investing has paid her off  by growing into a sum nearing 15 Lakhs, which translates into a 23.77%  annualized return, while she had put in 3 Lakh in her investment.  

By now, one point is clear that SIP is undoubtedly a correct approach towards achieving financial goals. Time and again, investment advisors have been reiterating this fact. So when next time markets are declining, you can still maintain your calm with SIP power.