Is it difficult to continue with the SIP?

Current environment and SIP  

1. “India's stock market is not in sync with the real economy which will result in a correction”, Reserve Bank of India (RBI) governor Shaktikanta Das warned-on Friday (21-08-2020) {Source TOI}
2. 'Full economic recovery to take very long time,' says Raghuram Rajan Former RBI governor on COVID-19 impact {Source: Business Today}

These are some examples. Many financial management experts say that the Indian economy may take not months but years to recover. In this context, let us look at the problems faced by an average SIP investor and about the questions in their minds.

1. Lack of money for essential needs
2. Declining current income
3. Job losses and no promotions in sight
4. Future income is not guaranteed
5. Permanence at work

In these circumstances, how will the average SIP investor mange to pay the sip in time?

“Do not stop sip when the market is down” - it is not advisable to stop SIP. Investment advisors and financial experts are saying these words one way or other in all mediums. They insist investors to keep paying SIP. Investors on the other hand do not have enough money to pay the SIP. This results in more doubts and confusion for investors on next steps about SIP. At this juncture what should investors? Let's see..

Missing payment in SIP

Many investors tend to miss their payments for SIP as they do not have money left in their bank accounts. As a result, purchase of units through SIP does not happen. It is not advisable to let go. When their SIP application goes to the bank and gets returned without payment, a small amount of money is taken from their account as penalty. Instead, if inflow of money is low, it is better to stop SIP a month before... in advance.

Pause in SIP (Temporary SIP Stop Method)

Once the SIP is stopped, most people do not continue or re-do same at later point of time. Once and for all, it gets stopped. This affects the investors plan for goal which was planned earlier. Many Fund houses and financial intermediate services companies have introduced the Pause facility in SIP “temporary SIP stop” system. By this pause we can skip SIP payments for 3 or 6 months without any penalty from any side. This can be done online during this COVID-19 time from home. {If you need any help in this regard you can reach out to me by filling request form available in this blog}[https://radhaconsultancy.blogspot.com/2016/10/email-me.html] It is considered better to pause than to stop the SIP completely.

The implications of SIPs termination

When SIP is stopped, it is has its own impacts. Let us understand it better. Usually we start an SIP with some goal in mind. However, as a result of SIP termination, the time to achieve the goal will increase, or the amount available at the end of the goal period will decrease. This should be kept in mind..

Finally

In the current situation, when the market is expected to be volatile, 

• For investors who have cash flow problems - Stopping or pausing the SIP is recommended.
• For affluent investors - continuing the SIP is the better than stopping.

Notes

SIP is can be made in equity funds as well as in debt funds.