Five Factors to Consider Before Stopping Mutual Fund SIP

Due to its disciplined nature of investing and rupee cost averaging features, SIP has become a preferred approach for many investors. That’s probably why the mutual fund industry saw a 25% rise in its SIP collections in 2022-23, reaching Rs. 1.56 lakh crores.

With an automatic investment plan, SIP allows you to save regularly and enjoy great returns without worrying about timing the market. However, SIP is a long-term commitment, and factors like loss of investment value in a falling market or low returns can tempt you to discontinue your SIP to protect your portfolio from further losses. 

So, should you go ahead with it? What are the factors to consider before discontinuing your SIP? Read on to know.

Factors of Stopping your Mutual Fund SIP

Systematic Investment Plans work on rupee averaging and the power of compounding. Rupee averaging suggests that you need to buy more units of a fund in a falling market when the prices are low and fewer when the market is up. This way, SIPs help you average the investment costs over time and maximise returns.

However, during volatile times, any loss in investment can encourage the investor to pull away from the investment. But, falling markets are an opportunity to accumulate more units at a lower price for long-term investment growth. 

As a result, instead of stopping your SIP in a falling market, here are other factors to note when planning to quit your SIP.

1. You have achieved your goal

When investing in a mutual fund scheme, you might have a certain goal attached to it. Perhaps you want to save for your child’s college education or buy a new house. 

2. Underperforming SIP

If you see your mutual fund scheme underperforming its benchmark and peers consistently, switching to a better-performing fund is wise. However, since a mutual fund is a long-term investment, never make this decision in haste. Analyse the fund’s performance for at least 2-3 years before discontinuing an underperforming fund. 

3. Fund objectives do not align with your goals

Mutual funds often change their core objectives to improve their performance. When that happens, you must evaluate your risk profile, asset allocation, and investment strategy to see if it aligns with the new objectives. Consider stopping the SIP and redeeming the invested amount from that fund in such cases.

4. You have alternative investments

Since mutual funds are professionally managed, SIPs are a simple way to save your surplus funds to meet your financial goals. With SIPs, it becomes easier to make investment decisions versus investing directly in equities or other instruments that require research. 

5. You see slow growth

With SIP, you invest a small amount regularly over a long period. You might see slow growth in the short term and consider stopping SIPs. However, small investments help generate greater returns in the long run with the power of compounding. So, it is important to be patient with your investments and not stop the SIP even when you see slow growth. 

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Frequently Asked Questions

How can SIP be stopped?

To stop a SIP, you can request cancellation from your AMC through online Mutual Fund Registrar. Fill in the required information such as your bank account, PAN card, scheme, SIP amount, and so on. Submit the necessary paperwork at the AMC branch.

Is it advisable to stop SIP?

Stopping a SIP is not always advisable unless there's a slow growth in the fund, the SIP is underperforming, or you’ve achieved your financial goal. SIPs benefit from long-term, consistent investments, so pausing might hinder wealth accumulation and impact compounding benefits.

What is the risk factor in SIP?

The risk in SIPs depends on the underlying asset, such as equities or debt. While SIPs help mitigate market volatility over time, the risk level varies according to market conditions and fund performance.

When to exit a SIP?

You should consider exiting a SIP when you achieve your financial goal, need to rebalance your portfolio, or the fund consistently underperforms compared to its benchmark or peers.