For those who want to invest money for the long term, while at the same time, enjoying some liquidity in their investment money, investing in mutual funds via SIP is one of the best options. Why SIP? Well, SIP is the short form for Systematic Investment Plan – it is an automated way of investing.
Since it is automated, you don’t have to mindfully remember to invest – this means you can’t forget or skip a SIP while you are busy. It is a “set it and forget” thing!
Also, since it is automated, it takes away the temptation to skip a SIP for a while because you have some other important expense!
Having said that, you can still pause your SIP for a while and restart it again – while on pause, the money you already invested will continue to grow.
Sounds exciting, isn’t?
If you are investing already in SIP, or planning to start one, hear me out. There’s a thing called “pausing” in SIP.
Most people don’t use it because they don’t know about it. Some people use it for reasons that it should not be used for.
When you have already started an SIP and want to briefly pause it, but not close or exit, there is one such option. It is called SIP pausing. It allows you to pause your SIP so that your monthly investment (automated) will not be processed until the time you pause it for.
You can start the SIP again any time later. Meanwhile, the money that’s already invested in your SIP will continue to grow and get returns. On the other hand, if you choose to exit an SIP, instead of using the pause option, for some reason then you cannot start the same SIP again. And, your money won’t be growing in the meantime too.
Say you encounter a financial crisis that’s extremely bad. You are squeezed and the money you have won’t be sufficient to meet your day-to-day needs and to manage the crisis.
In that case, many would opt to close a SIP and exit, probably to use that money to support the crisis, which is fine. However, instead of exiting and completely using up your investment, you could pause the SIP and withdraw some amount partially.
Similarly, if you want to shift your priorities and say, try a better investment method – you could do that. If your income won’t allow you to run multiple investment options parallelly, you could pause your SIP and give the new investment option a try. On the other hand, if your income would be sufficient to invest in both options, go for it.
Another case would be that you have a short-term commitment. Say, you buy something essential on EMI and have a short-term commitment that requires more funds. Or you have a big commitment coming up and you need to save up for that, say for the next 12 months.
These are a few examples of VALID reasons for which you can pause your SIP.
Say you want to buy something fancy that is quite expensive. This could be the worst reason to pause an SIP. You should either look for ways to increase your income, or wait for some more time until you can save up for that “want”.
Some people watch the market quite closely and stop investing in mutual funds or pause their SIP when the market goes up! This would make sense for buying individual stocks.
However, monitoring the ups and downs of the market too closely and buying more or less units of a mutual fund according to market fluctuations simply won’t make sense.
It will not bring you any substantial difference in the growth of your fund as a mutual fund, in the long run, will ease out on those kinks.
Remember, SIP is a long-term commitment. The longer you stay invested, the more benefits you can reap. It can be tempting at times to exit or withdraw the money and use it up. But in genuine cases, just pause the SIP instead of exiting. And don’t even pause for lame reasons.
The more you stay committed the more will be your returns.