The current market situation has forced many to think of stopping SIP (systematic investment plan). Almost every equity mutual fund scheme catoegory has given negative returns for the last two quarters. There are infinite reasons to it. It could be unexpected results from Karnataka, increasing oil prices, economy has slowed down due to GST and demonetisation or something else. The output is negative returns. Then why would someone want to continue. Let's see why:
Investor should understand that we go for SIP keeping long term financial goals. Because, we all know that it works on the dual concepts of rupee cost averaging and the power of compounding.
Rupee cost averaging help you not to bother about market peaks and lows and instead go for steady investment irrespective of market situations. And compounding grows your investment in leaps and bound manner.
So, if the rupee cost averaging and the power of compounding have to work to perfection then you need to continue your SIP for a long period.
So, here are the situations when you can think of breaking systematic investment structure.
Identify your scheme is underperforming consistently
Well, as we know SIP is for long term, still you find your fund is underperforming consistently, then it is time to move on. It is wiser to take this situation because a fund that has underperformed in past continuously has a very low probability of bouncing back. Most likely it will remain a laggard in the peer group. If underperformance is consistent, shift to a fund that has the potential to outperform.
Investment style has changed
Quite often, funds tend to change the core objective of the fund in order to improve performance. For instance, you want to invest in a diversified equity fund but the fund may decide to merge the fund with its banking, pharma or infrastructure related fund to gain economies of scale. And you are not ready to take this risk. In this case, you should just shift your SIP to another fund. Again, you need to evaluate if this shift is in sync with your objective.
Your goals are achieved
In general, we start SIP keeping particular financial goal in mind. For instance, you opt for different SIP's with your goals like buying home, car, children's higher education or wedding. Fulfilling these goals come as a reward of your continuity and predictability to your financial plan. Once your milestone and your SIP are cancelled off against each other, you can take a fresh view on what do with the money saved and then build that into your financial plan.