Thinking of pausing your mutual fund SIPs? A 6 month gap may cost you Rs 2 lakh additional loss

Systematic Investment Plans (SIPs) are a popular way for investors to build wealth by investing a fixed amount regularly in mutual funds. Instead of putting in a large lump sum at once, you invest smaller amounts periodically, which helps benefit from market cycles and compounding over time.

However, during unforeseen situations like a job loss, medical emergency, unexpected expense, or even market volatility, it is common for investors to consider pausing their SIPs. While pausing might seem harmless or temporary, it can actually come with significant hidden costs, especially over the long term.

So what exactly does it mean to pause my SIP and can temporary pauses disrupt rupee cost averaging benefits?


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Pausing a SIP means you temporarily stop your regular contributions, while leaving the existing investments untouched. Most mutual fund houses in India allow SIPs to be paused for a period, usually between three to six months, after which the SIP automatically resumes.

Pallav Agarwal, Certified Financial Planner, Bhava Services LLP, shared with ETMutualFunds that if a SIP is paused for a short period of time, it will not affect the averaging and accumulation benefit significantly, but if it is done for a prolonged period, it would certainly affect the investment outcome.

Another expert, Sagar Shinde, VP Research at Fisdom, told ETMutualFunds that a short, unavoidable pause does not materially impact long-term rupee cost averaging. However, frequent or market-driven pauses, especially during market corrections, can weaken rupee cost averaging by missing opportunities to invest at lower valuations.

Triggers to pause SIPs

Many investors pause SIPs due to emergencies, liquidity needs, or fear of market downturns. But while these reasons are understandable, pausing without a long-term plan can derail your goals more than you might expect.

The biggest cost comes from missing out on compounding. When your SIP is on hold, you stop buying new units, especially when markets are down and prices are lower. Over time, these missed units can significantly reduce your wealth accumulation.

When prices are lower, you accumulate more units and when prices are higher, you accumulate fewer units.

Many investors pause mutual fund SIPs based on different reasons, so when is it reasonable to pause a SIP, a long-term plan or some emergencies? In response to this, Shinde said that it is reasonable to pause a SIP when there is a temporary disruption to income or liquidity, such as job loss, medical emergencies, major unforeseen expenses, or a short-term cash flow crunch.

Pausing to preserve financial stability is prudent, but it should ideally be resumed once income visibility improves, he further said.

Also Read | Explained: How to handle a missed mutual fund SIP contribution

Sharing a similar opinion, Agarwal said that one may pause SIPs because of a temporary financial crunch due to unforeseen events like loss of income, medical emergency, or in case of major financial life events like marriage, child education, etc.

Pausing a SIP can also delay your financial goals, whether you are saving for a home, higher education, retirement, or any other objective. That gap may feel small at the time, but as compounding works over long periods, even a few missed contributions can push your goals further away.

According to an example given by Nippon India Mutual Fund, there were two scenarios, consistent SIP and a six month pause in SIP.

In the first scenario, where you are consistent in your SIPs, suppose you invest Rs 10,000 every month in an equity mutual fund expecting an annual return of around 12%. If you continue this SIP consistently for 15 years, the total amount invested would be Rs 18 lakh and the corpus could grow to about Rs 50.46 lakh.

In the second scenario, if you pause the SIP for just six months during a market dip, say in year five, you not only miss those six months of contributions, you also miss units that could have grown substantially over the remaining years. As a result, your final corpus could shrink to around Rs 48.16 lakh, invested corpus Rs 17.40 lakh, a loss of approximately Rs 2.3 lakh, with more than Rs 2.08 lakh from missed units alone. This highlights how even short breaks can cost you dearly in long-term returns.

What is rupee cost averaging?

Rupee cost averaging is one of the primary benefits of investing via SIP. Especially when investing in an equity mutual fund and dealing with higher market volatility, rupee cost averaging via SIP can ensure that the cost of your investments gets averaged out over a longer period of time.

To be able to earn high returns from the market, it is important that you buy low and sell high. However, most people, especially new investors, end up doing the opposite because they try to time the market in a bid to figure out the highs and lows.

Since timing the market is difficult, the investment strategy deployed to overcome this challenge is rupee cost averaging, a concept also employed by mutual fund systematic investment plans (SIPs).

Now the important thing is how do we evaluate if pausing the SIP is a necessity rather than a reaction to market volatility?

For this, Agarwal said that to evaluate, an investor may assess his or her emergency fund and check if the pause is because of market volatility or a genuine financial crisis. Investors may also consider reducing their SIP amount or changing the mutual fund scheme if it is not performing well.

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On the other hand, Shinde said that a SIP pause is a necessity if continuing investments compromises essential expenses, emergency funds, or debt obligations.

If income remains stable and goals are long term, pausing due to market volatility is usually an emotional reaction rather than a financial need. A simple check is whether the pause is driven by cash flow stress or fear of short-term market movements, Shinde further said.

One should always consider risk appetite, investment horizon, and goals before making any investment decisions.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)

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