Systematic investment plans have become the backbone of household participation in Indian equities. Millions of salaried individuals invest fixed amounts every month, trusting the process rather than market timing. Yet when headlines report a sharp fall in the Dow Jones Index, even disciplined SIP investors feel tempted to pause contributions. Similar anxiety appears when the Hang Seng drops sharply during a risk-averse phase. This article explains why continuing an SIP through turbulence is usually wiser than stopping, and how to optimise your approach so that volatility works in your favour rather than against you.
Table of Contents
The Logic of Rupee Cost Averaging
An SIP involves buying more units when the prices are low and fewer when they are high. The former thus enables you to lower the cost per unit and have a better average cost than if you were to invest a lump sum at the peak. During a down period, every instalment gets you more units than you would during an up period. Hence, it is advisable to not miss any instalments as that would defeat the main objective of an SIP of buying more during a down phase.
Choosing Funds With Care
You need to choose the funds carefully too. If you are a novice investor, go for broad index funds that offer the lowest expenses and best mirror the market. Funds like flexi-cap and large-cap funds from a consistent fund house could give you diversification. You need to look at the long-term performance, expense ratio, portfolio concentration and the fund house’s risk management track record. Always avoid ‘hot’ funds because the fund manager changes often and the new one might not manage the fund as well as his predecessor. It is always advisable not to go beyond two or three funds as investing in ten funds of the same type will only create duplication.
Increase Contributions Gradually
One of the best ways of investing through an SIP is through a step-up SIP, wherein you increase the monthly contribution by a certain percentage every year. This increase should ideally be in line with your salary increase. Even a ten per cent increase every year will have an enormous impact on your final corpus after fifteen or twenty years of investing. You can also consider increasing your monthly contribution during a correction scenario, as long as you have a healthy emergency fund. It might seem a little counterintuitive but it works out well for most investors.
Align Goals and Time Horizons
Equity SIPs are best suited for goals that are at least five to seven years away – say, children’s education, your retirement or a down payment on a second home. For goals closer than that, go for debt or balanced funds as they have less fluctuation. You should re-evaluate your goals and SIPs every year and adjust your new contributions according to your current needs. Ideally, you should be looking at your SIPs’ monthly statements rather than daily net asset values. It is important that you understand that with SIPs, patience and discipline will get you much further than quick riches. The global market will always have its ups and downs, but it is those who continue to feed into their SIPs that will benefit the most from compounding.
samanvya 
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