The entire country is going ga ga over SIPs. AMFI the mutual fund regulator has done a fantastic job actually marketing mutual funds saying that it is a safe bet. Mutual Funds Sahi Hai is now a regular tag line. It is in the best interest of the industry if a regulator is promoting the transparency and ease of use of the products that they regulate. There will never be miss-selling. It is also a compelling example created for the other regulators in the industry such as IRDA, SEBI, RBI and now the much awaited RERA to actually create investor awareness.
Now coming to SIP - by plain words it means systematic investment plan. However, every investment plan in Insurance was always a systematic plan. So what is special about this Mutual Fund SIP.
In our definition it is Small is Powerful. An SIP is a small investment which is made every month in a mutual fund which intern invests in equity stocks to benefit from the rising stock market of the country.
Isnt it Risky? That would be the immediate next question. We at Sushil Finance, love to do research constantly about the products we recommend. Our study shows that on a rolling return basis, no mutual fund has ever given a negative return over 5 years. This one line has a lot of depth in it. In any 5 year period of the market, starting at any point the returns from an SIP has been positive and that is the risk that one should look at. Now if there is sufficient data to prove that money will never go negative on a 5 year basis then why is there a worry about risk? An investor has to just plan his minimum time frame of 5 years and start investing.
The benefits are many.
1. Even the most seasoned stock investor cannot time the market which is a proven and accepted norm an SIP gives an edge over this and doesnt look at market timing.
2. By investing a small amount every month your net worth is not going to get affected at all in any way, so the fear of losing your savings should go.
3. By diversifying into 4-5 schemes you get the intelligence of the best of the fund managers in the country for a very small cost. This is a huge advantage which no one talks about. Getting access to the best of the brains in the country for a very small fee is something that is missed out.
Things to remember
Now if you have decided to do an SIP - its important to keep the following points in mind: Never see your portfolio regularly. Always review it once in 6 months or maybe once in a year. By seeing your portfolio regularly you get enticed by the returns of some funds and upset by the returns of other funds and end of stopping investment in the underperforming one. This is not healthy as you are unable to accumulate units at lower NAVs. But the real mantra of making profit is buy low and sell high. So ideally you should increase allocation to the underperforming one to benefit out of cyclical nature of markets.
Give 3 years to an SIP if it still underperforms the market then move out. This is simple action you have to take no need to marry your investments as well. 3 years is enough time for a fund manager to perform and stay invested. There is no harm in experimenting.
8 schemes is the best you should hold. The reason is each scheme has about 50-60 stocks and this will give you a good exposure to the best stocks of the market. It is always advisable to invest in Fund Managers who have different styles of investing. I.e. Value style or Growth Style. This will give you best of both worlds.
If you have understood the above points well this is good enough information for you to actually go ahead and plan your SIPs and achieving your financial dreams. Good luck for the future!
To know more about Mutual Funds-SIP investments click here
Vatsal Shah | Head - Wealth Management
He has been in the field of financial advisory for more than 8 years. His strength is building relationships and providing innovative solutions to investments. His work involves managing the wealth management department for Mutual Funds, IPOs, Bonds and Insurance.