Page 54 - Banking Finance November 2024

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SIPs: When to step up, pause,

or stop them

S ystematic investment plans (SIPs) have witnessed provided you do so in keeping with your risk appetite-
based asset allocation," says Abhishek Kumar, a Sebi-
expenential growth among retail investors,
according to a recent study by Zerodha Fund
registered investment advisor (RIA) and founder,
House. They account for 20 per cent of the
industry's total assets under management (AUM). The SahajMoney.
Experts also suggest regular portfolio reviews. "Review
total number of SIP accounts rose from 52.8 million in
your portfolio in April or May every year, just before you
March 2022 to 93.4 million by July 2024. The amount get the salary increment," says Manish Mehta, head of
contributed by SIPs rose from Rs 12,300 crore to Rs
sales and marketing, Kotak Mutual Fund.
23,300 crore over the same period.
Kumar cautions that investors should avoid over-stepping,
An SIP allows investors (particularly the salaried class)
as over-committing to SIPs can strain finances.
to match their cash flows with their investments. It
removes timing-related dilemmas and provides the When pausing is okay
benefit of rupee-cost averaging. Sometimes, events like job loss or health and other
emergencies affect one's ability to meet monthly
Step-up SIP
commitments. One may pause SIPs in such a scenario.
Investors can make their SIPs more effective by adopting
Pausing is also okay when valuation indicators flash red.
the step-up variant, which entails investors hiking their
"If you feel the market is overvalued, you may pause equity
SIP contributions at regular intervals. The Zerodha study
SIPs and restart when valuations have eased," says Mota.
discusses a case where an investor puts in Rs 1,000 per
month in the Nifty LargeMidcap 250 Total Return Index One may also pause to meet one's asset allocation
(TRI) from April 2005 till March 2024. With a normal requirement. "If you have achieved your ideal allocation
SIP, the investor ends up with a corpus of Rs 12.6 lakh. to equities, pause your equity SIPs and redirect fresh
With a 5 per cent annual step-up, she accumulates Rs money into debt instruments," says Kumar.
17 lakh. A 15 per cent step-up boosts the corpus to Rs Don't pause SIPs during a market downturn as you would
35 lakh while a 25 per cent hike sends it skyrocketing
miss out on the opportunity to buy fund units at low prices.
to Rs 84.5 lakh. "It can impact financial discipline and lead to missed
No time like now for step up opportunities," says Kumar.
There is no right or wrong time to step-up SIPs. "It should When to stop an SIP
be done in tandem with the increase in income. By going An SIP may be stopped and the corpus redeemed once
for the step-up option, you will reach your goals faster," a financial goal has been achieved. Sometimes, fund-
says Nehal Mota, co-founder and chief executive officer related developments necessitate stoppage. "The fund
(CEO), Finnovate. manager may have changed and the new manager may
Market conditions should not drive this decision, since not meet your criteria. The fund's performance may not
SIPs are about letting time work in one's favour by be up to the mark. The fund's mandate may have
staying invested for the long term and letting rupee-cost changed and may not suit your risk appetite and time
averaging work its magic. "You may step-up anytime horizon," says Mota. (Source: Business Standard)

48 | 2024 | NOVEMBER | BANKING FINANCE