Whenever we want to squeeze money out of a money market or a capital market, the foremost thing that is a magnet for our mind is investments in securities. Due to non-proficiency or other dynamic aspects like corporate policies, providence etc the investors of securities market are gambled frequently and the word security becomes far-flung for the expected returns, of course sometimes the principal also dwells away. A regular salaried employee is not finding investments in shares as a superior boulevard for his customary investment neither the traditional deposit schemes earn him good returns, thus a via media became essential to cater such needy. In such cases systematic investment plans became an oasis.
SIP- an undersized investment
Succinctly, a Systematic Investment Plan (SIP) is nothing but investing undersized monies in the market of securities on a periodic basis through mutual funds. Mainly it caters the needs of small investors who earn on a regular basis.
A layman approaches
Some extra cushion is available for investors in this mode. Professional approach is not required for fundamental analysis of a company, whether it is a matchbox or a mansion in margins, the investor never worry about it. Watching various news channels, analysis, spending more time on selecting portfolios, etc. can be easily avoided. Even a finance illiterate and small holder of funds can easily manage his investments and foresee his earnings.
Transfer of burden of portfolio management
Portfolio management is a thing that is to be scrutinized from time to time; this will be taken by the mutual fund managers. Whenever a mutual fund is not doing good investors can easily shift to the funds that are playing well. So mutual fund managers take optimum care to enhance the returns of the investors as they never wish to forego their customers. Moreover, a professional approach in choosing the funds and managing the portfolios can be observed.
Low investment spread among various sectors
Thirdly one cannot afford to invest in an assortment of sectors when available savings are not high. This hurdle is eradicated successfully by SIPS. The investment that collected from various investors is clubbed and invested in various securities, such that even a single rupee investment will be proportionate and floated into many sectors.
A discipline approach and tax heaven
The market can be reaped well with a disciple approach. No hassles of transaction costs, etc. One can invest in mutual funds which are tax heavens also. On the basis of requirements one can plan the kind of mutual fund as today, many numbers of mutual fund schemes are in the market bouquet. In timing the market, one can miss the larger rally and may stay out while markets were doing well or may enter at a wrong time when either valuation have peaked or markets are on the verge of declining.
Plan the unplanned
Liquidity, returns, security, availability, accessibility and other such aspects are dynamic in nature and keep our hands away from the market. Now these are sleeked to much extent by the Mutual Fund agencies and pouring the essence in our cup. Just lay back and have a sip of SIP.
Due to many ignition factors like demonetization, SIP campaigns, flexible options etc there is a vast growth in the SIP volumes.
The other side…
There will be no value for the coin unless it possesses both the sides, one positive and the other is negative. It will be a gloomy picture if this second side is eclipsed. There are some thrones in the path of SIP and some of them are
Less returns: When compared to other equity returns, SIP returns are poorer in regularly rising markets. As there is a high diversity of funds into various sectors, the roaring sectors may be given by less preference in conservative front. So when the SIP holder continues to do fishing on the banks, whereas the risky investor sails.
Stopping intermediate payment: This aspect is really a cumbersome process in the SIPs. We can stop only after completion of the cycle of months, we cannot stop or cease payment immediately, the same is to be informed by the fund manager, the auto debit, if any, is to be stopped, it is a bulky process with lots of communication.
Lot of delay between actual application & start/stop of SIP: Even though everything is digital and online, the start and stop process undergo some black and white process. In this process a small vacuum form between the application date and the date of start or stop of the SIP
Does not suit people with unpredictable cash flows: As discussed earlier, it better suits for the people who are getting a regular income, like salaried employees. In the case of irregular incomes, the investors might run out of bucks on the date of investment or auto debit.
Even though SIP suffers from these disadvantages but it still seems to be one of the best investment options available to a long-term investor. It particularly suits First-time investors in equity and those who do not have a lump sum or the time to track their investments. The salaried class should also opt for SIPs since it becomes a good savings habit. Investors who do not wish to be stressed by market volatility should adopt the rupee-cost averaging method for secured long-term investment planning. It suits for developing economies like Indian economy where the middle class and salaried employees are large in number.
Dr. CMA V.V.V. Phani Kumar
Manager (F&A) – Rashtriya Ispat Nigam Limited (RINL)