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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Insurance Companies
Mutual Funds

Fund Name	3 Years	5 Years	10 Years
	Returns
Virtue II PNB Metlife	18.68%	25.83%	16.48% View Plan
Pure Equity Birla Sun Life	17.56%	21.84%	15.07% View Plan
Large Cap Equity Fund Tata AIA	18.45%	21.82%	14.88% View Plan
Grow Money Plus Fund Bharti AXA	14.74%	18.58%	14.12% View Plan
Pure Stock Fund Bajaj Allianz	17.34%	20.53%	14.04% View Plan
Diversified Equity Fund HDFC Standard	14.77%	17.79%	13.96% View Plan
Growth Super Fund Max Life	15.5%	17.5%	12.83% View Plan
Equity Fund SBI	14.88%	16.53%	12.1% View Plan
Bluechip Fund ICICI Prudential	13.23%	15.89%	11.33% View Plan
Growth Plus Fund Canara HSBC Oriental Bank	12.92%	13.89%	10.36% View Plan

Updated as of Nov 2024

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Fund Name	3 Years	5 Years	10 Years
	Returns
Active Fund QUANT	24.92%	31.48%	21.87%
Flexi Cap Fund PARAG PARIKH	20.69%	26.41%	19.28%
Large and Mid-Cap Fund EDELWEISS	22.34%	24.29%	17.94%
Equity Opportunities Fund KOTAK	24.64%	25.01%	19.45%
Large and Midcap Fund MIRAE ASSET	19.74%	24.32%	22.50%
Flexi Cap Fund PGIM INDIA	14.75%	23.39%	-
Flexi Cap Fund DSP	18.41%	22.33%	16.91%
Emerging Equities Fund CANARA ROBECO	20.05%	21.80%	15.92%
Focused fund SUNDARAM	18.27%	18.22%	16.55%

Updated as of Nov 2024

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Reasons Why You Shouldn't Cancel

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.
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.
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.
Financial Discipline

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