It may not be the best decision to stop your SIP right now..

It may not be the best decision to stop your SIP right now...

The current locked-down situation has resulted un uncertainty of our finances in the immediate future at least.

In an attempt to stream-line our finances one of the things that comes to mind is to reduce/stop our monthly investment in Mutual Funds (SIPs).  Well, this may not be the best decision.

Let us see how our SIPs work... Below are a two tables for an Equity Fund and the purchase details from April 2007 to March 2008 (At a normal time – when markets are stable and rising) and from April 2008 to March 2009 (At a time when the markets were collapsing – during the Financial Crisis of 2008)

FRANKLIN INDIA BLUECHIP FUND - GROWTH

Date	NAV	Investments	Units
10-04-2007	124.4232	5000	40.185
10-05-2007	130.3859	5000	38.348
10-06-2007	134.0950	5000	37.287
10-07-2007	145.0525	5000	34.470
10-08-2007	145.2212	5000	34.430
10-09-2007	150.6874	5000	33.181
10-10-2007	175.8169	5000	28.439
10-11-2007	173.6504	5000	28.793
10-12-2007	190.1854	5000	26.290
10-01-2008	192.7679	5000	25.938
10-02-2008	156.0509	5000	32.041
10-03-2008	148.7650	5000	33.610
Total:		60000	393.013

During a stable – rising market note the NAV column above.  Beginning at an NAV of 124 it went all the way to a high of 192 before coming down to 148.  During that time 5000 invested for 12 months (Rs. 60000) accumulated 393.013 Units

Let's see what happens in a Falling Market scenario (like now)

Date	NAV	Investments	Units
10-04-2008	145.7610	5000	34.303
10-05-2008	154.5640	5000	32.349
10-06-2008	139.4043	5000	35.867
10-07-2008	130.8970	5000	38.198
10-08-2008	144.0627	5000	34.707
10-09-2008	139.2883	5000	35.897
10-10-2008	108.6052	5000	46.038
10-11-2008	107.4882	5000	46.517
10-12-2008	99.6224	5000	50.190
10-01-2009	97.1565	5000	51.463
10-02-2009	99.8969	5000	50.052
10-03-2009	88.9042	5000	56.240
Total:		60000	511.820

During the next 12 months falling markets, note the NAV column above.  Beginning at an NAV of 145 it went up only in the next month to 154 and then began coming down finally settling at 88.  During that time 5000 invested for 12 months (the same Rs. 60000) accumulated 511.820 Units – 118.807 more units than in a rising market.

The NAV of Franklin Blue-chip today is 347... The Average Cost of the accumulated units was just 132 again helped by the units purchase in the falling market.

Period	Market Type	Investments	Units Accumulated	Value of 60000 at NAV of 347
April 2007 to March 2008	Stable rising market	60000	393.013	136375
April 2008 to March 2009	Falling Market	60000	511.820	177601

Rs. 120000/- invested during those troubled time would today be valued at Rs. 313977/-

While stopping our SIPs may be the first thing that comes to mind,  let us see if we can cut down expenses elsewhere. Already our leisure activities have been curtailed in the last fortnight.  The money saved here can surely go towards savings?

Let's think of ways to continue investing since it will pay us well when things settle down.

Best Wishes and Hope God keeps us all safe and gets us out of this situation soon

Michael Duarte

07th April 2020.