The recent robust performance of the stock market is undeniably sparking enthusiasm, as investors eagerly anticipate additional gains in the upcoming days. While the delight of profiting from the market is clear and tangible, it is crucial to approach this optimism with a prudent perspective.
Favourable economic data releases, such as robust job figures or enhanced GDP growth, have the potential to bolster investor confidence and elevate market sentiment. There is optimism that the upcoming interim budget will tackle pertinent issues related to taxation and credit accessibility. Numerous companies have disclosed impressive earnings, thereby substantiating elevated valuations and increased stock prices.
Deciding against continuing investments?
Amidst this euphoria stemming from an economy that continues to defy macroeconomic factors and show resilience, numerous investors are becoming anxious, contemplating whether to halt their systematic investment plan (SIP) contributions or postpone lump sum investments altogether.
This is a question that cannot and must not be responded to without due consideration. There is a need to look at it objectively considering how many investors are driven by unwanted fears and paranoia into stopping or delaying their investments.
A tête with some personal financial advisors reveals why discontinuing or delaying investments offers no advantage. Succumbing to market hype has proven more detrimental than beneficial, with even those who claim to be long-term investors rushing to secure profits from their mutual funds.
Should you pause or stop your mutual fund SIPs?
Typically, it is not advisable to halt your SIPs during market peaks. Do you understand why?
- Primarily, timing the market is notoriously challenging. Consistently forecasting market movements is nearly impossible, even for experienced professionals. Attempting to pause and resume SIPs based on short-term highs and lows can result in missed opportunities and diminished returns over the long term.
- SIPs leverage cost averaging. Through SIPs, you consistently invest a fixed amount at regular intervals, irrespective of market fluctuations. This strategy evens out your cost per unit over time, allowing you to acquire more units when prices are low and fewer when they’re high. This approach minimizes the impact of volatility and has the potential to enhance your overall returns.
- Investing through SIPs cultivates discipline. Interrupting your SIPs can disturb your investment discipline and create challenges in resuming the routine later on. The consistency of regular, automated investing holds significant power, and halting it can disrupt that momentum.
Rishabh Parakh, Chief Play Officer, NRP Capitals explains, “SIPs must not be stopped given the market highs and should only be stopped in case there is a change of financial goals or future earnings but market high lows are not in anyone’s control. For lumpsum, one should spread the same in 6-12 months via a systematic transfer plan.”
Certainly, there could be certain situations where assessing your SIPs is a prudent move. However, linking this decision to potential corrections following market highs might not be accurate. All-time highs are a frequent phenomenon in the stock market and are not necessarily indicative of an imminent correction. In reality, historical data demonstrates that markets can continue to trend upward for prolonged periods, even after reaching new highs.
Viral Bhatt, Founder, Money Mantra added, “Deciding whether to pause SIPs or lump sum investments at market highs is a complex question with no single right answer. If you have concerns about market valuations being particularly high, a temporary pause in lump sum investing could be prudent. This allows you to deploy the capital later when potential corrections offer lower entry points. Apart, if you have short-term financial goals that require accessing the invested funds soon, you might consider pausing or slowing down contributions to prioritize liquidity. Also, if market volatility at such highs increases your anxiety, taking a temporary break might be beneficial for your mental well-being.”
Suresh Sadagopan, Founder, Ladder7 Wealth Planners added, “One should keep the investments on as the high point is as compared to the past; the index or stock can go far ahead in the future in line with the performance of the economy, stock or the index. By trying to time and stopping, one runs the risk of investments not happening and the risk of money getting spent on something or the other.”
Interrupting or ceasing investments during market peaks or due to apprehensions about a correction is counterproductive to reaching your financial objectives. Bhatt adds, “Instead of stopping completely, you could choose to reduce your SIP or lump-sum amount until market conditions seem less frothy. One may also consider investing in safer assets. Divert some of your investments to less volatile assets like debt funds or gold while maintaining exposure to equities. Expand your portfolio to include different asset classes and sectors to mitigate risk and volatility.”
In the end, whether to halt, cease, or maintain investments hinges on individual financial goals, risk tolerance, and market outlook. Seeking personalized advice from a financial advisor based on your specific circ*mstances can be beneficial.
HomeMutual FundsMutual Funds: Should you stop or pause investing when markets hit all-time highs? 3 experts answer
FAQs
Interrupting or ceasing investments during market peaks or due to apprehensions about a correction is counterproductive to reaching your financial objectives. Bhatt adds, “Instead of stopping completely, you could choose to reduce your SIP or lump-sum amount until market conditions seem less frothy.
Should you invest in mutual funds when the market is high? ›
What is the best time to invest in Mutual Funds? There is no rule of thumb or fixed criteria to state the best time for investing in mutual funds. While a bear market may look like an ideal time to invest in mutual funds, the identification of a bear market entirely depends on the expertise of the fund manager.
Is it good to pause SIP when the market is high? ›
Stopping SIPs during market peaks will deprive you of the benefits of rupee cost averaging and long-term compounding, potentially leading to missed opportunities for wealth creation. Therefore, it is essential to stay invested and maintain discipline irrespective of market conditions.
How to invest when the market is all time high? ›
In a rising market, a concentrated portfolio might increase your chances of losing money. When markets are really high, you need to diversify. In diversification, you need to include stocks of different market capitalization. You can invest in large-cap stocks which tend to be stable during such volatility.
When should you not invest in mutual funds? ›
However, mutual funds are considered a bad investment when investors consider certain negative factors to be important, such as high expense ratios charged by the fund, various hidden front-end, and back-end load charges, lack of control over investment decisions, and diluted returns.
Should I redeem mutual funds when market is high? ›
The act of redemption in Mutual Funds is often the result of investor reaction. Investors may redeem impulsively due to a rise in their investments' value or may react to market volatility. However, much like hasty investments, unplanned redemptions can lead to financial challenges.
Is it OK to invest when market is high? ›
All-time highs are a good opportunity to examine and manage your risk. All investors should consider rebalancing their portfolios, and active investors may consider hedging. Let's take a look at both. While a bull market may be great for portfolio growth, it may throw off your asset allocation.
Should I invest in mutual funds now or wait? ›
In conclusion, the best time to start investing in mutual funds is as soon as possible. Whether you're a young professional or approaching retirement, there are mutual fund options suited to your needs.
Should I withdraw mutual funds now? ›
You generally can withdraw money from a mutual fund at any time without penalty. 7 However, if the mutual fund is held in a tax-advantaged account like an IRA, you may face early withdrawal penalties, depending on the type of account and your age at the time.
How long should I keep my money in mutual funds? ›
The recommended investment horizon for long-duration mutual funds depends on individual financial goals, but typically, investors should consider staying invested for 5-10 years or more to maximise potential returns and mitigate short-term market volatility.
When it comes to equity, it is very important that, especially when you are thinking about long-term goals, you want to exit as soon as you have 2-3 years left approaching your goal and there are just 2-3 years to get there. That is number one.
When should you cash out a mutual fund? ›
However, if you have noticed significantly poor performance over the last two or more years, it may be time to cut your losses and move on. To help your decision, compare the fund's performance to a suitable benchmark or to similar funds. Exceptionally poor comparative performance should be a signal to sell the fund.
Should a 70 year old invest in mutual funds? ›
Conventional wisdom holds that when you hit your 70s, you should adjust your investment portfolio so it leans heavily toward low-risk bonds and cash accounts and away from higher-risk stocks and mutual funds. That strategy still has merit, according to many financial advisors.
Should I invest lumpsum in mutual funds when market is high? ›
Is Lumpsum investment profitable? Lump sum investments offer the chance for higher returns but come with risk. They're ideal for long-term investors comfortable with market swings and who have a windfall to invest. Otherwise, SIPs might be a better fit.
Which mutual fund is best when the market is high? ›
What are High Return Mutual Fund?
- ICICI Prudential BHARAT 22 FOF Direct Growth. ...
- Motilal Oswal Midcap Direct Growth. ...
- Quant Mid Cap Fund Growth Option Direct Plan. ...
- Quant Small Cap Fund Growth Option Direct Plan. ...
- Nippon India Small Cap Fund - Direct Plan - Growth Plan. ...
- HSBC Small Cap Fund Fund Direct Growth.
There is no specific date of the month that gives better SIP returns. So, your own convenience should be the only determining criterion. For example, if you are a salaried person and receive your monthly pay at the end of the month, then you can plan your SIP in the first week of the following month.
Do mutual funds outperform the market? ›
Do mutual funds outperform the stock market? The study found that most actively managed mutual funds do worse than their benchmark index during most calendar years and over the long run. Notably, low-cost stock and bond index funds generally offer more predictable returns and lower costs than actively-managed funds.
