To understand why Systematic Investment Plans (SIPs) should not be stopped during market falls, let’s analyse this concept through rupee cost averaging, which is the main advantage of continuing SIPs regardless of market fluctuations. Simply put, it means that even when the market drops, one can accumulate more units with the same investment amount.

Here’s a step-by-step calculation:

Assumptions (The assumptions and scenarios are for illustration purposes only):

1. Monthly SIP amount: ₹10,000

2. Market NAVs (Net Asset Values) fluctuate for 6 months:
   Month 1: ₹100
   Month 2: ₹80
   Month 3: ₹60 (market falls)
   Month 4: ₹50 (market bottom)
   Month 5: ₹70 (recovery)
   Month 6: ₹90

Scenario 1: Stopping SIP during market falls (Month 3 and 4)
You only invest in Months 1, 2, 5, and 6.

Total Investment: ₹40,000
Total Units Purchased: 478.97
Current Value (NAV ₹90): ₹43,107 (478.97 × ₹90)
Gain: ₹3,107 (7.8%)

Scenario 2: Continuing SIP during market falls
You invest consistently in all 6 months.

Total Investment: ₹60,000
Total Units Purchased: 845.64
Current Value (NAV ₹90): ₹76,108 (845.64 × ₹90)
Gain: ₹16,108 (26.8%)

Comparison:

1. Scenario 1 (Stopping SIP):
- Total Investment: ₹40,000
- Total Value: ₹43,107
- Gain: ₹3,107 (7.8%)

2. Scenario 2 (Continuing SIP):
- Total Investment: ₹60,000
- Total Value: ₹76,108
- Gain: ₹16,108 (26.8%)

Why SIPs Shouldn’t Be Stopped:

• Stopping SIPs during falls reduces overall growth potential and undermines the primary benefit of systematic investing.

• SIPs buy more units at lower prices when markets fall, reducing the average cost per unit. You accumulate more units at lower prices and have the probability of better long-term returns. Add Step-Up SIP to increase your SIP amount periodically at a quantum of your choice.

• Market recoveries provide amplified returns on the accumulated lower-cost units. By stopping SIPs, you risk missing out on market recovery gains.

The views expressed in this article are for knowledge/information purpose only and is not a recommendation, offer or solicitation of business or to buy or sell any securities or to adopt any investment strategy. Aditya Birla Sun Life AMC Limited (“ABSLAMC”) /Aditya Birla Sun Life Mutual Fund (“the Fund”) is not guaranteeing/offering/communicating any indicative yield/returns on investments.

Mutual Fund investments are subject to market risks, read all scheme related documents carefully.