Systematic Investments Plan (SIP)

3 SINs Shouldn’t be committed

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SIPs (Systematic Investment Plan) in equity Mutual Funds have become every household means of investment and importantly, it is a widely accepted investment tool with the millennials too. Investment through SIP has been well understood by many as solution to both short term and long term goals. This great investment tool should get more and more acceptability among the masses to use it for wealth creation. However, the investor behaviour is unusual with all investment products and it is no different for SIPs too, where they commit blunders which have irreparable effects to their wealth creation. Below are 3 Sins which can cost dearly to the investors for achieving their financial goals;

  1. Delay in Starting SIPs : This is a very common pattern with many who not only want to time the market to begin their SIP but also want to wait for major inflow to happen. Let’s analyse both the aspects for the delay in starting the SIP- Timing the market- While you start a SIP it is meant to take benefit of averaging your cost of each investment made over period of time. The most common apprehension is when the markets are high; the investment would be made at higher NAVs. However, it is difficult to time the market but it would be beneficial to start SIP when the markets are high. This is mainly because with the correction in the market, an investor accumulates more units with every tranche of investment at lower NAV and gains are substantial when the market rises. Second aspect, investors who wait for some big inflows to happen also haven’t understood the functioning of SIPs. The amount could be as low as Rs.500 p.m. that could be pulled out from your inflows to achieve your financial goals. Rather any big inflow can give an opportunity to invest in your ongoing SIP for higher accumulation. Thus, one shouldn’t delay starting a SIP for any reason which acts as barrier to reach your financial goal.

  2. Unnecessary Withdrawals- We have observed most of the investors when see a sizeable accumulation of their fund try to fulfil their short term goals or satisfy their materialistic gratification through the corpus. This disturbs the process of accumulation of wealth that was started with a thought of achieving long term goal which gets dissuaded by desires of reaching Short term goals. It is a SIN one commits when one doesn’t plan short term goals like buying an expensive mobile, going a vacation or buying swanky car and fulfil it from accumulation meant for Long term goal. A small or big withdrawal can hit the corpus when evaluated over long period of time.

  3. Trading in Sips like a Commodity- We all desire to enhance our profits from our investments which could be in any form. Equity investment raises everyone’s expectation of making abnormal profits and investors try to buy & sell stocks to increase their profits. However, SIP is a different style of investment which requires patience to give you better results and any experiment by making switches between categories of market caps may not result in desired results. Investors who are backed by good research try to strategize timing of investment between 3 different market caps- Large, Mid and Small in order to maximise profits. However, applying similar strategy while making investments in equity through SIP might not yield similar results. Investment in one category of market might not give returns for years and you may lose patience resulting in switching to other category. This could prove to be wrong decision as the SIP tranche when invested in such a category isn’t performing one is accumulating units at lower value and with any improvement in indexes of the same category brings returns to all accumulated units. Thus, it is better to remain patient with the category you have been investing and not time the market to make switches of SIPs between the categories of market cap.

We have listed above some mistakes investors make with the investment avenue which is attaining popularity but the hidden strength of the product isn’t understood by many. It would be important for an investor to make a diversified portfolio in different categories in Equity MF through SIP linking with you financial goals. This would give you participation in all categories though one need to decide the length of the SIP based on the goal you wish to achieve out of each SIP. The long journey of SIP isn’t easy to travel alone; therefore, one needs to have a ‘Sarthi’ to lead you to the final destination.