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Kolkata: Many people think that SIP or Systematic Investment Plan, by itself is a sound investment strategy, whereas investment experts point out that it is rather a disciplined way of investing that reaps the advantages of rupee cost averaging. The practice of blindly following SIPs is not prudent investment practice and can easily result in heartbreaks.
It is not a wise practice to start a SIP every year after salary increment. If one follows this policy -- which many do -- it can lead to wasted investment since it could leave much to be desired in terms of returns. The portfolio can become ungainly and unmanageable. Therefore, an integral part of any portfolio is to avoid bloating of the portfolio with overlapping funds. It is highly possible that you end up chasing the same set of stocks with several funds which you might have opened in the course of a few years.
Experts point out that the number of SIPs is not important but the goal that they serve is. Therefore, if you have a few goals it can suffice to have an SIP or two chase a goal, which will determine the quality of resource allocation. SIPs should be spread in different asset classes and one should take care to ensure that a few SIPs are not chasing the same asset class or the same category of the same asset class. For example, one should not begin three or four SIPs in funds that are focused on mid cap or small cap or large cap stocks. You can also think of topping up an existing and performing SIP rather than open a new one in another fund.
Switching around SIPs just because there is a trending theme is a mistake, says Kolkata-based personal finance strategist and director Wishlist Capital Nilanjan Dey. Just as one should not buy stocks with tips from friends and relatives, one shouldn't also begin an SIP simply because friends/colleagues/neighbours are chasing a new hot sectoral fund. A fund can generate high returns at one time and become a favourite of the investors but it can also be cyclical. Thematic funds have captured the imagination of investors but one should not allocate more than 15% of one's portfolio in these funds, says market analysts. Therefore, more than counting the number of SIPs, check where is your money actually going.
The distributor/adviser who is guiding your investments should guide you to do conduct a portfolio rebalancing periodically. The markets are changing and portfolios should be usually realigned periodically. Market cycles almost always demand that investors have a fresh look at their portfolio. He/she should keep you updated periodically on how your portfolio is performing and, if necessary, suggest modifications. SIPs are an excellent practice but not an end in itself. The end should be chasing your financial goal and SIPs should be a convenient tool to guide you to that goal.
It might so happen that you have a lump sum in your pocket and the market is just appropriate for such an investment, but in your blind obeisance to SIPs, you opt for a systematic investment plan and don't do a lumpsum investment, which could have generated higher returns.
(Disclaimer: (Disclaimer: This article is only meant to provide information. TV9 does not recommend buying or selling shares or subscriptions of any IPO, Mutual Funds, precious metals, commodity, REITs, INVITs, any form of alternative investment instruments and crypto assets.))
