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Myths Arpound Systematic Investment Plans or SIPs

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Here I would like to start this article by defining “What Is A Myth”. A myth is a story which may or may not be true. It is generally old and its conclusions might have been lost in time. However in general a myth is a story whose conclusion is taken for granted without checking it. Many a time the wrong conclusions are drawn. “He Who Must Catch Fish Must Not Mind Getting Wet” This basically means that in order to succeed in our systematic investment plans we need to demystify the myths. Only then can we make an informed decision in order to invest in a Systematic Investment Plan

 

I Can Do It Alone I Don’t Need Any Help:

Here many people try to do an SIP in a single stock; An SIP is done in an Equity Diversified Mutual Fund which is a portfolio or basically a collection of a number of stocks in different sectors. We cannot do an SIP in a single stock. But I will stick only to Blue Chip Stocks? However good a stock is it is too risky to put all your eggs in one basket. Many companies perform well for about 3 years and some of them become a part of the major Index like the BSE Sensex. A certain major Infrastructure company was once part of the BSE Sensex but now it no longer is part of the Sensex. If we look at the power sector we find all the major power Companies languishing in the doldrums. This is mainly because of lack of coal supply .Imagine if we had taken a bet in a single major Power company or for that matter a major Telecom Company which is shaken up due to the 2G scam. What would be our state? Everyone is wise after a bitter experience but a wise man learns from other’s mistakes.

SIP Is Only For Small Investors And Salaried Guys:

Here SIP is a concept or a technique and does not depend on the sums of money invested. Here many people believe that an SIP is only for small investors who want to save for a rainy day. Do you think this is true? Here an SIP does not depend on the sums invested. An HNI might invest INR 500000 per month in an SIP and a salaried man say INR 5000 per month. Here we see that both of them are making use of the SIP albeit for different amounts. Here a man becomes rich not by doing things differently but by following the basic rules and doing the right things. Remember the piggy bank we all had in our school days. This is basically an SIP without a rate of return.

Isn’t SIP A Fund Or A Scheme:

Here you might have heard many people ask “What Is the NAV of my SIP? Here people forget that SIP is a tool or a technique to invest in the stock market. It is not a mutual fund and does not have an NAV value. Here this is a technique to invest in a particularly good mutual fund.

SIP Should Always Be Done Timing The Market:

Here people state that we should start an SIP when the markets are low and exit when the markets are high. How does one come to know when the markets are high and when the markets are low? Who could predict the highs of the stock market in 2007 or for that matter the stock market crash of 2008 due to the USA Subprime lending crisis. The very basis of an SIP is to stay invested in the market irrespective of the ride. Here the ride could be smooth, choppy or outright Stormy. “Remember Caution Is The Parent Of Safety”.

SIP Is The Cure For All Diseases:

Here many people believe that SIP is a magic wand that can skyrocket the returns on our investments .Don’t these SIP’s give us great returns over a 5 year term period? .Here one needs to be wise and prudent while demanding returns from these funds. No one can predict market crashes and if we had started our SIP in the Year 2007, what would be the value of our SIP’s in December 2008. Here in an SIP we have to plan the mutual fund scheme, time horizon and the period of investment. Here we obtain lesser units of a mutual fund when the market is rising due to rise in NAV and higher number of units in a falling market due to a lesser value of an NAV. Unfortunately most of the people close up the SIP in a falling market taking up great losses.

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