Undoubtedly, 2020 has been a challenging year for the industry, economy, and businesses. Thanks to the pandemic hovering in our lives, a lot of us haven’t got increments and bonuses to match the previous years. Along with lower annual inflow in your bank account, your mutual fund investment values are perhaps a standstill too. So, in such a situation, what should you do about your mutual funds? Invest in SIP to ensure that you contribute towards your future financial goals in a disciplined manner.
What is SIP?
Systematic Investment Plan (SIP) is a way to invest in mutual funds. Under SIP investments, an investor contributes a fixed amount at regular intervals for a specific period in their preferred mutual fund schemes. The periodicity and the investment amount is predetermined by the investor before starting an SIP. The periodicity of the intervals can be daily, weekly, monthly, quarterly, semi-annually or annually. This instils financial discipline among investors which is necessary to achieve long-term financial goals. However, how should you go about SIPs during such times of uncertainty?
Here’s what you can do during such uncertain times.
- Don’t stop your monthly investment– While you might have pencilled a specific growth in your SIP each year if you haven’t got an increment or significant bonus this year, hold on to your last year’s investment amount. Also, try not to lower your monthly SIP investments because your long-term goal is fueled from your monthly SIP. Cut down on your expenses if need be, but consider SIPs as sacred and continue with it.
- Don’t switch to safer options– Conserving profit in times of a market downturn is a natural thought. Investors often wonder if they should stop with their equity investments and move to safer investments like debt funds or fixed deposits. However, doing so will dent the return expectation on your long-term goals for which you begin your regular investments in equity funds. It’s best to make your peace with falling returns and stay put if your goal is still far away.
- Cut back on discretionary expenses– If you must, you should cut down your costs to accommodate SIP investments. This does not mean that you have to forgo your necessary expenses and daily needs like fees, medicines and so on. Instead, you should rethink large spends like weekend trips, designer apparel, vacations, etc.
Slack on some of these frills and you’ll realise that you can generate that little bit extra money every month which lets you continue your daily lifestyle without pulling back your SIPs or dipping into your investment pile. You can also use an SIP calculator, also known as SIP return calculator to understand the returns on your mutual fund investments on maturity. Happy investing!