TO SIP OR NOT TO SIP?

Naresh is an advertising executive. At the beginning of the year, he received a pay hike when he least expected it. He was happy and decided to open a systematic investment plan (SIP) with a well know fund house. And then the virus hit the world.

Today, Naresh is working from home and he does not know when things will ever get normal. Given the nature of this job, he does even know if he will retain his job or soon get slapped with a pay cut. He knows that his clients, at this juncture and even two months later would not be ready to spend on advertising. His income is partly linked to the number of sales he does. He knows, that part of his income is going to take a huge hit. Being practical, he knows he needs to conserve cash and decided that his SIP is a luxury in the current circumstances and has put a hold on it.

Naresh is not the only one in this dilemma; many like him, employed and self-employed across various sectors, are staring at job loss and pay cuts. No one knows how long this pandemic will continue – the goal post just keeps on getting extended further and further. And cash is king as one does not know what emergency one might need to face in the coming days. That apart, many have opted for the three-month moratorium on the EMIs – assuming life paddles back to some new sense of normalcy, more money will be needed to once again start servicing the obligations. All these factors have thus forced many to stop SIPs and the mutual fund industry is most certainly bracing itself.

This figure in itself tells us the story – while on one hand, SIP inflow in March was at a new 52-week high at Rs.8641 crore, on the other, the SIP stoppage ratio (number of SIPs discontinued or expired as a percentage of fresh SIPs registered) hit 71% in the same month.

Those in the fund industry say that this 71% was mainly on account of drop in fresh SIPs being registered rather than existing SIPs being discontinued. But April? Probably, in this month, the bitter truth of the situation dawned and with a complete lockdown, in the coming days, we are sure to see new highs in SIP stoppage ratio.

So what to do if you have a SIP and don’t know what to do? If you do not anticipate any major upheaval in your monthly cash flows, continue with your SIP. Keep in sight your risk appetite and financial goals, if and only if, you have a good emergency corpus built up should you continue with the SIP. At this juncture, lives and health should be priority and not equity.