market crash covid 19

Market Crash: Should You Stop Your SIP and Invest in SDP?

The disease outbreak has affected the stock market severely and created a crash comparable to that of 2008. SENSEX and Nifty started to fall with the announcement of the Union Budget on 1st February 2020. Since then, both the indexes have lost points, the highest on 23rd March, when SENSEX decreased by 3,900+ points and Nifty, 1,100+. These levels were the highest weekly loss since 2008.

As a countermeasure, the RBI on 26th March reduced the repo rate by 75 bps to 4.40%, the lowest in at least 15 years. This announcement further impacted the stock market negatively.

Several financial services, automobiles, smartphones, aviation, and other companies have reported major losses. Because of such severe impacts, you can consider to stop your Systematic Investment Plan (SIP) and invest in SDP plans.

Systematic Deposit Plans – Ideal option during a market crash 

A Systematic Deposit Plan is a feature of fixed deposits that allows individuals to invest a specific sum of money every month. It is similar to SIPs and eliminates the need to deposit a lump sum amount to open an FD account. 

Individuals can continue to save with Systematic Deposit Plans during this market crash and earn assured returns as these schemes are not market-linked.

Reasons to save with Systematic Deposit Plans

Some of the reasons why these plans are a better alternative than SIPs during this market crash are mentioned below – 

Attractive rate of interest 

These plans offer interest rates starting at 7.6%. Senior citizens will receive an additional 0.25% interest over this rate. Also, those renewing their accounts will be eligible for an additional 0.10% interest over and above the normal rate. 

Flexible lock-in periods to maximize savings 

Tenors for Systematic Deposit Plans range between 12 to 60 months. Depositors will be eligible for higher rates of interest when opting for longer tenors. Using an SDP calculator will help customers assess their returns based on the lock-in period.

They can opt for different tenors with multiple accounts to maximise their returns and create an investment portfolio based on their financial goals. 

Only Rs.5,000 required to start an account

Individuals can start saving in a Systematic Deposit Plan by making a monthly deposit of Rs.5,000. The low minimum amount makes these plans highly beneficial for those who have started their career. There is no ceiling for the maximum amount for deposit. 

Avail loans against the deposit  

SDP plans also offer the facility of loans against the deposit. Depositors can take this advantage during a financial emergency.      

Loans are also available against mutual funds. However, asset management companies usually set a minimum limit to the loan amount. Further, the maximum amount is usually set at 50% for hybrid funds, ETFs, and equities and can be even 15% for fixed maturity plans and debt funds.

Facilities for premature withdrawal 

Those not willing to avail loans against their Systematic Deposit Plan can prematurely withdraw one or more deposits. Customers can do so after their deposits have completed a period of at least 3 months.

Offers high stability 

NBFCs like Bajaj Finance offers Systematic Deposit Plans that are rated stable by CRISIL and ICRA. Thus, individuals can opt for these plans during this market crash as there is zero to minimum risk involved.     

Only a few documents required to open an account 

Those opting for SDP plans only have to submit the following documents – 

  • PAN.
  • Voter ID, Passport, Driving License, Aadhaar, etc. (any one).
  • NACH mandate and account payee cheque.

Automated payments for zero hassle 

Similar to SIPs, Systematic Deposit Plans also provide the option for automated payments. The NACH mandate and account payee cheque links the customer’s account with the scheme. With this, all future payments are automatically debited from his/her account.

Zero penalty fees for missed payments 

Account-holders don’t have to pay any penalty charges in case they have missed a particular payment owing to any reason. However, it should be noted that their financial institution will charge a penalty fee in case of the insufficient balance in the account, which leads to a failed payment.

Availability of joint accounts 

Customers also get the facility of opting for a Systematic Deposit Plan jointly with another family member.

In addition to the above, account holders also have the option to cancel their Systematic Deposit Plan at any time. They can do so simply by canceling their NACH mandate.

Owing to these above reasons, it is recommended to stop your SIP and invest in Systematic deposit plan during this market crash. The stock market may also take considerable time to recover and become investment-worthy, by which time you can accumulate substantial wealth by investing in this scheme.

Author Bio:

Gaurav Khanna is an experienced financial advisor, digital marketer, and writer who is well known for his ability to predict market trends. Check out his blog at Highlight Story

Radhe Gupta
Radhe Gupta is an Indian business blogger. He believes that Content and Social Media Marketing are the strongest forms of marketing nowadays. Radhe also tries different gadgets every now and then to give their reviews online. You can connect with him...