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SIP Stoppage Is Easy, But Are You Doing It For The Right Reason?

While a lot of attention is focused on starting an SIP, investors also need to analyse the reasons for stoppage of transaction.

<div class="paragraphs"><p>(Source: Unsplash)</p></div>
(Source: Unsplash)

It is now very easy for an investor to start the process of regular investing through the use of Systematic Investment Plans. At the same time, it is as easy to close an existing SIP when one wants to. While a lot of attention is focused on starting an SIP, the same kind of effort is not made for analysing the stoppage of the transaction because this has to be done for the right reason.

Here's a look at some of the reasons why this happens and its implications:

SIP Stoppage

There are multiple reasons why an investor might stop an SIP. It could be because they do not want to continue with the investment or it could even be that they are not happy with the fund that they are investing in. Sometimes, there is also the expiry of the initial SIP period and this is not renewed.

All of these have to be considered in the light of the situation that is prevailing in the markets and the economy and the specific position of an investor. The number of SIP that are stopped have also to be considered against the new SIPs that have started and the kind of investment that is coming in, so that one is looking at the whole picture and not just a part of the situation.

If there are more additions of SIP than the number of those being closed and the amount being invested goes higher then it should not be a cause for concern.

Impact On Performance

One of the reasons for the closure of a SIP is that the performance of the fund is not as per the expectations of the investor. This is a common experience because there are times when the equity markets take a plunge and with this, the returns and performance of the fund is also affected.

Many investors get disturbed by this turn of events, and as they see red on their portfolio values, they think that the investment is not the right one and needs to be changed.

This is the wrong reason for stopping the SIP, unless the fund selected itself is not the right one for the goals and the needs of the investors. The reason that this kind of situation crops up is because the investor has been chasing returns and they have invested in funds that have performed well in the recent past, but this might not continue going ahead.

Ideally, a weak performance is the right time to invest in a good fund and this gives more units to the investor. Stopping an SIP without giving adequate time to the investment to perform is also not a good idea, so only if a fund has been consistently underperforming over a longer time period should the stoppage be considered.

Technical Issue

These are times when there are some problems with the renewal of the SIP or the investment cannot be continued due to some technical problems that do not allow the funds to be invested.

This is a reason that can be tackled because the intention of the investor is to actually invest the amount regularly, but some step in the process like wrongful rejection by bank or inadequate funds is not allowing this to go through.

Hence, the moment the problem is resolved, the investor will be able to start the investment process again, and this is what has to be aimed for so that there is no disruption in the long term investment plan.

Investors are often lazy and they forget about such issues and this can lead to a hit for them as their investment will stop.

Change Of investment

There are also times when the investor would want to change the investment that they are making and move from one scheme to another.

In this regard, the old SIP might be stopped but a new one might be started. This is a valid reason for the switch and hence, this should not be a cause of concern.

The investor needs to continue with the investment and as long as this is happening, the switch is acceptable.

Arnav Pandya is founder of- Moneyeduschool.