Don't Stop Your SIP: Avoid This Common Mutual Fund Mistake

Systematic Investment Plans are an advantageous investment mechanism that helps you follow a disciplined approach to building long-term wealth. However, many investors tend to reconsider their SIP commitments during periods of market dips or personal financial hardship.

The most common question is “Should I stop my SIP?”! The clear answer is that such decisions could prove to be counterproductive.

The urge to discontinue SIP investments is due to short-term market fluctuations or fear of loss. But history always proves that these market situations are short-lived, and the actual gains are in remaining invested.

A strong example of this is from January 2018 to August 2019, when the Nifty Small Cap 250 Total Return Index (TRI) declined more than 42%. This was a sharp and painful fall. However, an investor who started an SIP at the peak of the market in January 2018 would have made 13.60% returns per annum over three years, 19.39% per annum over five years, and 23.07% until January 31, 2025.

These numbers highlight an essential investment reality; SIPs pay off in the long run if you have patience and discipline. Hence, you need to consider the long-term impact of stopping SIPs and look for better options.

10 Reasons Why Not to Stop SIPs

The following are 10 important reasons why you must reconsider mutual fund SIP withdrawal:

1. Market Fluctuations Are Transient, Growth Is Sustainable

Financial markets go in cycles - up cycles with optimism from investors and down cycles with fear. SIPs capitalize on these fluctuations using rupee cost averaging, where investors can purchase more mutual fund units during downturns in the market and fewer units when the market is up. This brings down the cost of investment in the long term.

Dhirendra Kumar, CEO at Value Research, accurately observes, "There are periods of markets where the markets are high and it keeps on going higher. If you are fearing today that the market is high, you will always fear, and won't invest."

Stopping SIP investments during such periods eliminates the chance of reaping the benefits of market recoveries. On the contrary, maintaining your investment and conforming to professional SIP investment advice enables you to purchase units at cheaper rates.

2. Power of Compounding Takes Time

Compounding enables your returns to generate returns in the long run, provided you don't discontinue your SIP investments. SIPs depend on compounding to create huge fortunes, and this takes time, usually decades, to provide its complete potential. Thus, if you are thinking, "Should I discontinue my SIP midway?" the obvious reply is NO.

Take Mr. Roy's instance, who invests a ₹10,000 SIP each month in an equity mutual fund yielding a 12% annual rate.

At 20 years, his corpus doubles to ₹76.6 lakhs. If he discontinues it at 10 years, the amount shrinks to merely ₹23.2 lakhs.

That's a difference of ₹53 lakh just because of the compounding period. Make use of the SIP return calculator at AssetPlus and understand how investing long-term ensures the highest returns.

3. Timing the Market Doesn't Work

Trying to time the market is one of the biggest mistakes made by SIP investors. The concept of mutual fund SIP withdrawals during periods when the markets appear to be overvalued and resuming it when markets correct could result in opportunities lost and gains missed.

For instance, during the March 2020 COVID-19 crash, the Nifty 50 fell over 30% in weeks. Most investors suspended their SIPs due to fear. But those who didn't stop their SIPs witnessed a robust comeback by December 2020, when the index had recovered above pre-COVID levels.

Suresh Sadagopan, chief founder and officer of Ladder7 Financial Advisories, upholds this principle when he asserts, "The market highs are about the past. In the future, it will go far higher. We need to continue investing with a long-term horizon to create substantial wealth".

Since no one can accurately predict market ups and downs, staying invested through volatility is a more time-tested strategy.

4. Goal-Based Investing Needs Discipline

Financial planning with SIP helps meet long-term financial objectives such as building a corpus for retirement, funding a higher education for a child, preparing for a vacation or wedding in the family, or saving for a home down payment. Stopping SIPs can ruin long-term SIP benefits, and reduce the maturity corpus.

To stay on track, investors must not think of their SIPs as month-to-month payments but as steps on a ladder to specific goals in life. Regular monitoring and consistency, and taking professional SIP investment advice from MFDs at AssetPlus, are required to achieve the goals within the timeframe.

5. Other Alternatives Instead of Stopping SIP

Stopping an SIP completely is a drastic measure. Here are some other rational options:

Decrease the size of your monthly investment to stay in the market and maintain your cash flow within limits.
Many investors ask, “Should I pause my SIP”? Stopping SIP investments temporarily for a specific period without incurring penalties or breaking the continuity of investments is better than completing a mutual fund SIP withdrawal.
Another option is to switch to another fund which represents your current financial picture or market view and is preferable to an exit.

These decisions are best made with the assistance of mutual fund distributors, who can also offer customized advice using technological tools and functionality on platforms like AssetPlus.

AssetPlus offers robust tools such as the Fund Finder, which makes it easy to select the right mutual fund. Through three simple steps- investment type, amount, and tenure; your risk tolerance; and putting your choice of fund in the investment cart- you can customize your portfolio in a minute. This reduces guesswork and helps in appropriate fund selection.

6. Emotional Investing Leads to Poor Decisions

In times of market fluctuations or economic instability, fear prevails over logical reasoning, causing investors to discontinue their SIPs. Such action, based on emotions, could lead to short-term losses.

Disciplined investing, on the other hand, makes investors maximize SIP benefits long-term. SIPs, by definition, instill discipline and discourage spontaneity, which can create vast wealth. Excluding emotions from market gossip and sticking to long-term goals are essential for wealth creation through SIPs.

7. Tax and Exit Load Considerations

The untimely redemption of a mutual fund SIP can carry tax and transactional considerations, which are most often underemphasized. Let's see how:

Equity Linked Saving Schemes are tax-benefited under Section 80C of the Income Tax Act; however, each SIP installment comes with a three-year lock-in period. When you exit SIPs prematurely in ELSS, you disturb your tax planning and curtail your right to claim future deductions.
Besides the tax aspect, you must also consider exit load implications. Most equity mutual funds charge an exit load, usually 1%, if units are sold within a year of investment. If you stop your SIP, you end up paying this exit load that reduces returns.
Further, gains above ₹1.25 lakh in a financial year are taxed as long-term capital gains at 12.5%.

The impact of stopping SIPs or unscheduled redemptions can unknowingly push investors into tax brackets and reduce post-tax returns.

8. SIPs Perform Best in Volatile Markets

Declines in the market, while psychologically uncomfortable, provide SIP investors with an opportunity to buy more units of mutual funds at reduced Net Asset Values. This mechanism, known as rupee cost averaging, reduces the average cost per unit over the long term, which in turn enhances long-term returns when the market recovers.

Historically, SIP investors who did not dump shares during testing periods have seen their portfolios rebound and outperform the ones that were sold off. Take, for example, the 2008 financial meltdown. The Sensex declined more than 50% between January 2008 and March 2009. A SIP investor who continued putting money in a diversified equity scheme in this period saw a remarkable comeback between 2009 and 2014.

The performance of SIPs in such circumstances is proof that volatility is not something to be avoided but embraced. Such investors emerge with improved portfolios and returns on assets than those who try market timing.

9. Rebalancing Rather Than Stopping SIPs

Another reason not to stop SIPs is the option of portfolio rebalancing, a strategy to adjust investments according to your risk appetite and changing financial objectives. Rebalancing techniques involve:

Time-Based Rebalancing - Periodically revising your portfolio.
Threshold-Based Rebalancing - Rebalancing when thresholds are reached.
Hybrid Rebalancing - Periodically reviewing, investing in hybrid funds, and intervening when SIPs reach a certain level of deviation.
Cash Flow-Based Rebalancing- Rebalancing using fresh SIP investments without redeeming existing investments.

Apart from rebalancing, diversification can handle risk. Rather than investing in one category of funds, distribute your SIPs across large-cap, flexi-cap, hybrid, international, and thematic funds. This strategy minimizes volatility in one area and enhances portfolio resilience.

To make this process easier, investors can utilize tools from platforms such as AssetPlus. Their experienced mutual fund distributors utilize features such as the CAS Upload Dashboard to make effective rebalancing decisions personalized for each investor.

10. Seek Advice Before Making a Decision

Several investors discontinue their SIPs without understanding the impact of stopping SIPs. Look for professional assistance to assess whether to continue or stop SIP based on investment objectives, risk tolerance, and time horizon.

Working with expert mutual fund distributors at AssetPlus has several advantages:

AssetPlus provides an easy-to-use, technology-based platform that allows portfolio tracking in real time. Professional assistance improves decision-making through strong advisory tools and educational resources.
Distributors are provided with ongoing learning through webinars, virtual events, and online courses to remain current on market trends and products.
Through ChannelPlus, they have access to an archive of previous webinars and more than 100 pre-designed presentations on business strategies, insurance, and mutual funds.
Biz Guru is another valuable resource, a knowledge-sharing portal where MFDs can ask questions and receive expert responses in real-time.

Expert SIP guidance is essential to pick the perfect fund and craft an adaptable approach that changes along with life. Count on AssetPlus to be your guiding partner.

Conclusion

SIPs are effective long-term investment instruments founded on discipline, regularity, and rupee cost averaging.

Investors ask, "What happens if I stop SIPs?"

Discontinuing them in the short run can wreck long-term money goals. There is always an inclination to stop SIPs in a downturn market, but that is seldom the best decision. As Ashwini Kumar, Head of Market Data at ICRA Analytics, indicated, "With the structural growth story of the Indian economy still intact, we expect retail investors to continue investing through the SIP route." His words emphasize the promise of SIPs, particularly in an emerging economy such as India's.

The secret is to remain invested, have faith in the process, and allow your investments to mature. If you're not sure, seek advice from a professional instead of acting on impulse. Let experienced MFDs at AssetPlus walk you through expert-guided, technology-driven investing, keeping your wealth creation journey smooth, irrespective of market situations.

Stay patient, stay invested, and let your SIPs work for you!