Why You Should Not Cancel Your SIP Within a Short-Term?

Systematic Investment Plans (SIPs) have become a popular investment choice due to their ease, affordability, and potential for long-term wealth creation. However, investors might be tempted to cancel their SIPs during market downturns or due to immediate financial needs. Here are a few reasons why you should not cancel your SIP within a short period of time.

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SIP Benefits
Start SIP with as low as ₹1000
Start SIP with as low as ₹1000
No hidden charges
No hidden charges
Save upto ₹46,800 in Tax
Save upto ₹46,800 in Taxunder section 80 C
Zero LTCG Tax
Zero LTCG Tax^ (Unlike 10% in Mutual Funds)
Disciplined & worry-free investing
Disciplined & worry-free investing

Reasons Why You Shouldn't Cancel

  1. Missing Out on Rupee-Cost Averaging

    SIPs leverage the power of rupee-cost averaging, which involves buying more units when the market is low and fewer units when the market is high. This helps you acquire units at an average cost over time, mitigating the impact of market volatility. Cancelling your SIP during a downturn means you miss out on the opportunity to buy more units at a lower cost, potentially hindering your long-term returns. To calculate your returns on SIP investments, use an SIP Calculator. An SIP calculator is a tool used to estimate the potential returns on investments made through SIPs in mutual funds or other fund schemes. It helps investors plan their investments by calculating the future value of their SIP contributions based on factors like investment amount, duration, expected rate of return, and frequency of investment.

  2. Disrupting Compounding Power

    Compounding is often referred to as the "eighth wonder of the world" by Albert Einstein, and for good reason. It allows your returns to generate additional returns, exponentially increasing your investment value over the long term. Cancelling your SIP disrupts this compounding process, potentially impacting your ability to achieve your financial goals.

  3. Market Timing is Difficult

    Predicting the exact market bottom is nearly impossible. By continuing your SIP, you avoid the risk of missing out on potential rebounds.

  4. Financial Discipline

    SIPs promote a habit of regular saving and investment, which is crucial for long-term financial well-being. Canceling disrupts this discipline.

  5. Flexibility with SIP Amounts

    Many platforms allow you to adjust your SIP amount. Consider reducing the contribution temporarily during financial needs instead of complete cancellation.

  6. Power of Habit

    Regular SIP contributions become a habit over time. Cancelling can disrupt this habit and make it harder to restart later.

    Example: SIP Growth Potential

    Let's consider an example. Imagine you started a monthly SIP of Rs. 1,000 in an equity fund 5 years ago. The average annual return during this period was 12%. If you had continued your SIP, your investment value would have grown to approximately Rs. 1,01,592. However, if you had canceled your SIP after two years, your investment value would be significantly lower, at around Rs. 32,486. This demonstrates the significant difference that time and compounding can make in your investment journey.

FAQs

  • What are some alternatives to cancelling my SIP during a financial need?

    Consider exploring options like pausing your SIP for a limited period if your investment platform offers it. You can also temporarily consider adjusting the SIP amount to manage your cash flow.
  • How can I make sure I stay disciplined with my SIPs?

    Set clear financial goals and link your SIP to them. Automate your SIP contributions to avoid the temptation of skipping instalments. Regularly review your investment portfolio but avoid making impulsive decisions based on short-term market movements.

+For Mutual Fund midcap category Returns https://www.morningstar.in/tools/mutual-fund-category-performance.aspx & for Insurance midcap fund category Returns- https://www.morningstar.in/tools/insurance-fund-category-performance.aspx
*Past 10 Year annualised returns as on 01-12-2023
*All savings are provided by the insurer as per the IRDAI approved insurance plan. Standard T&C Apply
^The tax benefits under Section 80C allow a deduction of up to ₹1.5 lakhs from the taxable income per year and 10(10D) tax benefits are for investments made up to ₹2.5 Lakhs/ year for policies bought after 1 Feb 2021. Tax benefits and savings are subject to changes in tax laws.
~Source - Google Review Rating available on:- http://bit.ly/3J20bXZ
^^The information relating to mutual funds presented in this article is for educational purpose only and is not meant for sale. Investment is subject to market risks and the risk is borne by the investor. Please consult your financial advisor before planning your investments.

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