SIP – systematic investment plan, probably the simplest way of investing that make your money count in the long run. Yet systematic investment plans (SIPs) that have easily outperformed key indices in the long run aren’t especially helpful if you don’t put your money on a continuous basis for at least 2-3years.
SIP of mutual funds (MFs) across themes and categories which have given 10% more returns than benchmark indices such as the Sensex and the nifty in three and five years time frame are one of the best options to build a large corpus. They come in handy to meet one off expenses such as marriage and buying a house.
With the SIP facility one can invest even Rs 500 on a regular basis (monthly or quarterly) for a chosen period (6 months of 1 year). The small but regular investment used to but MF units over the year slowly grows into a big corpus enabling on to meet long term financial goals, say observers
SIPs bring in a certain discipline to the investment process. One can achieve major long term goals by investing simple amounts of money through SIPs.
For instances to accumulate a retirement corpus of Rs 1.5 crore after 28 years assuming a return of 1% per month, you would need to contribute Rs 5,438 a month over this period,
Many average investors typically tend to invest more when the market is on the rise and put less money when there is a sudden fall. The average returns for SIP investors are better compared to someone who is trying to time the market. SIPs are better than one time payouts and other investment options as they give higher returns.
But like any other investment idea SIPs too have their pitfalls and wouldn’t give you much if you invest for a shorter period or close to the market peak. SIPs would under perform in a market that sees a sharp surge.
And taking a SIP for short periods, say six months or even a year would not be hugely beneficial especially in a rapidly rising market. For instance those who made investments between October 2007 March 2008 when the market rose sharply scaling new highs wouldn’t have made much even through SIPs and would have to play the waiting game a little longer to make any meaningful gains.
The real value of a SIP comes out only when you invest for the entire (bull and bear) market cycle. It all depends on when the averaging happens. Short term SIPs made closer to the market peak would not work.
A long term SIP besides being easier on the pocket would be able to generate 15-18% a year much higher than most other asset classes, he says. And if someone s making investments in excess of Rs 3,000 a month, the SIPs should be spilt and done on different dates as the averaging out concept works out better then say observers. So SIP it right and be there for the long haul to make your dreams a really.
Call it the retail investor’s dilemma. When markets rise, most of them regret not investing when the stocks were down. Instead, when markets plunge, they get scared and pull out or stop investing. Again, that’s something many investors did few months ago. It is a standard joke in the market that individual investors are always late comers. They enter the market when it is at historical high and they exit when it really hits a low. If anyone wants to make money they should do the opposite. They should buy when the market is low and sell when it is high.