Should I stop my SIP?

Dilip Asbe Prem Khatri Radhika Gupta Nilesh Shah A. Balasubramanian Aarati Krishnan Raghavan Srinivasan Dhuraivel Gunasekaran lokeshwarri sk Sumit Gulati Chetan Doshi Raghuvir Srinivasan Gursharan Rai Bansal Rajesh Chandramouli Kartik L Jain Casparus Kromhout Swarup Mohanty Subhasri Sriram Mervyn Shanmugam Vikas Satija Akhilesh Singh Nanda Kishore NS Ajay Thomas John Shashi Bhushan

Shruti: Hey Ram, have you been following the news lately? Sensex has been plunging by 800 to 1000 points. They’re saying the markets are expensive and more corrections are on the way. And then there’s the issue with the US increasing import tariffs. I’m honestly a bit worried. Do you think I should stop my SIP in the Flexi Cap Mutual Fund Scheme?

Ram: I get why you’re concerned. But let’s clear up some basics first. Do you know the difference between a market correction and a crash?

Shruti: Aren’t they the same? Both mean the market is falling, right?

Ram: Not quite. A correction is healthy for the market. It’s when prices adjust to more reasonable levels, removing any excess hype or “froth” as they call it. A crash, on the other hand, is a sudden, severe drop often triggered by panic or a major crisis.

Shruti: Okay… so how can you tell which one is happening now?

Ram: Good question. Let’s look at history. Remember the 2000 dot-com bubble? That was a crash because tech stocks were insanely overvalued, and the bubble burst. Then there was the 2008 Global Financial Crisis – that was triggered by the collapse of the housing market and banks. And who can forget 2020 when COVID hit? Markets crashed because of the sheer uncertainty and global panic.

Shruti: Wow, those were massive events. But nobody could’ve predicted them, right?

Ram: Exactly! They’re called “black swan” events—rare and unpredictable. But what’s happening now is different. This is just a correction, not a crash. It’s a sign of a healthy market resetting itself.

Shruti: I see… but it’s still scary to watch my investments lose value.

Ram: I get that. But here’s the catch: those who stayed invested during past corrections were handsomely rewarded. It’s all about patience. Equity is a wealth creation tool meant for the long haul. Think of it as a marathon, not a sprint. Yes, markets are volatile, and sometimes the ups and downs are dramatic. But that’s just how equities work.

Shruti: Why do prices fluctuate so much though?

Ram: At its core, a stock’s price depends on two things: Earnings Growth and PE re-rating. In simple terms, the market always tries to predict future earnings. When actual earnings don’t meet expectations, prices adjust. Global factors, geopolitical tension, FII selling, currency fluctuations, GDP forecasts… all of these play a role.

Shruti: Makes sense. But how do you know which companies will survive the volatility?

Ram: Quality companies with sustainable business models usually withstand short-term volatility and deliver superior returns in the long run. That’s why it’s crucial to invest in fundamentally strong companies or funds that hold them.

Shruti: That’s reassuring… but should I really keep my SIP going?

Ram: Absolutely! In fact, continuing your SIP during corrections means you’re buying more units at a lower price. That’s the magic of rupee cost averaging. And look at the data—despite the recent correction, the top Flexi Cap Funds have delivered 17% and 20% CAGR over the last 3 and 5 years. It proves that if you have a long-term horizon, you don’t need to worry about short-term fluctuations.

Shruti: You’re right. I was just getting anxious because of all the noise in the news. Thanks, Ram. I feel much more confident about sticking to my SIP now.

Ram: I’m glad to hear that. Just remember, the market rewards discipline and patience. Stay focused on your long-term goals, and you’ll be fine.

Disclaimer: Mutual Fund investments are subject to market risks, read all scheme related documents carefully. Performance as on 11th February 2025 under regular plan. Views are personal.