Whether an investor should stop doing an SIP in a declining market? Is it foolish or the right move? Let us discuss what happens when an SIP is done in different market scenarios?
Consistent Uptrend
Since the entry points are rising, the Average entry price keeps on increasing. Resulting in higher entry point and lower to moderate returns.
Sideways Consolidation & Up move
When the market is consolidating it is a comparatively better entry point since the purchase is made before the growth in price, resulting in higher returns.
Correction & Up move
When stock or mutual funds are bought during a correction phase or a downward moving trend, then, it is a best entry point since the stocks or mutual funds are accumulated at a low price and later on giving higher returns.
Conclusion:
This analysis this based on the fact that the Stock Market, share price or mutual fund, as the case may be shows an up trend towards the end. However the market is unpredictable. The moral of the story is that, if you are pouring money through an investor mindset, then systematically and periodically investing ensures that the extreme volatility of the market is averaged out resulting in steady growth in the long run.