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Should you stop your SIPs amidst the COVID 19- induced stress in the financial markets?

In the current environment where global economy and personal finances are under severe stress, people are rethinking their investment decisions.Most of the mutual fund houses are allowing their investors to pause their SIPs.

The right answer to whether you should stop, pause, increase or decrease your monthly investments depend on the following:

1. Do you have a healthy emergency fund which can tide you over at least six months of zero income?
2. Are your ongoing investments into mutual funds that are excellent performers relative to their respective peer groups?
3. Do you have sufficient funds parked in safe assets (overnight/liquid funds) to meet all your near-term goals?

If you have a sufficiently healthy emergency fund and have already moved money to meet any upcoming major expenses to less-volatile debt funds, it is advisable that you continue your ongoing investments.

Also, make sure that these investments are being made into mutual funds that are performing superlatively well relative to their respective peer groups. If not, please redirect them into better performing funds.

The discipline to continue your investments even when the market dips, rewards you with the opportunity to buy a higher number of units of the mutual fund you are investing in.

Consider this, you invest Rs 1,000 every month for the next 12 months in a mutual fund with a starting NAV of Rs.97. Over the course of the year, the NAV of the scheme varies as follows:

If the mutual fund’s NAV continues to be Rs.98 on 31 December 2020, your investments would be worth Rs.12,743 and have made you an annualised return of 11.63%.