There is lot of noise in the media that SIP(Systematic Investment Plan) is one-stop solution to all of your financial needs! Yes SIP is a wonderful tool to achieve your goals, No Doubt about it! But are you fully dependent on SIP’s for your life goals? Read the full story!
Don’t rely fully on Sip’s– Even though Sip is an evergreen term in investing, we should not depend entirely on sip’s. Do you know the reason why?
In social media, there is lot of mis-selling information on sip. Though there intention is to promote sip’s, investors believes that “sip’s would do Wonders in Short term”.
Sip just avoids emotional investing of buying at high price and selling at low price. If They are continued irrespective of the market conditions, then only sip would do “magic”. But this is almost impossible to retail investors as they are emotionally connected to their hard earned money and sell their funds in hurry! Though financial experts recommend to do sip’s in turbulent times, due to investoors emotional connectivity, they end up looses
Don’t expect sips would outperform in all market conditions– Sip is not a magical tool to deliver superior returns in all market conditions. You may loose your capital(Temporary)when the market is in bear phase, but instead of doing sip, if you invest lumpsum(only if you can hold for long term)in bear market(down fall)you would end up huge returns when the markets turned into bull-run(upwards)
Sip’s won’t guarantee you from capital erosion– There is lot of promotion in social media that sips protect you from capital erosion. Before concluding the statement, stock market is always irrational and no one would predict the market movements.
If you do sips in bear market, your capital may eroded temporarily, but once the market rebounds you will gain compounding power of more units in bear phase. This is one of the best reasons to do sips.
Sip’s won’t guarantee you always positive returns– There are hundreds of mutual fund schemes lagging the benchmark by delivering negative returns. If you don’t believe this have a look on valueresearch, money control, morning star sites and you may be surprised to see hundreds of mutual fund schemes lagging the benchmark.
So don’t expect all sips would deliver positive returns. You have to closely watch your funds performance atleast once or twice a year . Ensure your fund selection criteria should be based on the funds objective and it should be match with your risk appetite.
Don’t choose funds out of your risk taking ability. If any bank representative, mutual fund agent/distributor forcing to take a fund out of your risk taking capacity, Reject them sensibly!
So even though sip would perform better in the long run, due to investors emotional behaviour, they are missing out compounding power. If you don’t shuffle your schemes frequently, then only do sips!