Updated: Apr 28
We did an experiment to see what happens if you stop SIP when markets are falling.
Causes of stopping SIP early -
High expectations with investments. A lot of investors start investing in SIP expecting great returns from their investments. Setting such high expectations and it not working out in the short term makes them start questioning this investment product and hence, makes them stop investing in SIPs.
Too much noise around - Bad news about the economy, or a friend/ relative sharing his sour experience in Mutual funds, the first thing investors do is to stop their SIPs.
And we did an experiment to see what happens if you stop SIP when markets start falling.
It can be quite tough to stomach the volatility of the funds you have invested in. Behavioral experts state that investors feel losses more than higher returns. In order to not face any more losses, investors tend to stop the SIPs or redeem the invested amount when the markets show a bear phase.
Example - Two investors - A & B, both started a SIP of Rs. 5,000/- on 1st Jan 2003 for 15 years (Oct 2018)
Investor A continued his SIP during the 2008 Global financial crisis (when markets fell by around 50%!) while, investor B, stopped his SIP in the market crash.
Result - Investor A invested Rs. 6 lakh more, but his portfolio value was higher by 20 lakhs! This was because, when markets corrected, he bought more units (at cheaper prices) and hence, his average buying cost was MUCH LOWER than Investor B.
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Source: ET Money