You may have been told by the electronic media how SIP (rupee cost averaging or dollar cost averaging) has failed its investors in the past 3 years. If you have seen such programs / read such articles, you may have panicked, right? Well do not panic. Here is a list of reasons why a SIP FAILS.
1. When the market comes down, your advisor asks you to stop. Well replace the word advisor with father, mother, son, son-in-law, …..it does not matter. In case you are swayed by that person, you will commit the biggest INVESTING mistake. SIP is in existence so that the emotion is removed – you invest when you have money! When the markets are down you invest, when the markets are up you invest. Simple.
2. Forgetting to keep the account going on for a long run. This happens when you sign up for SIPs for a year or two. Once the term is over, you are too lazy to renew it. This is sad. Because Jan 2008 to Sep 2008 the market returns may have been abysmal, but the SIP returns may have been good!
3. Choosing to do a SIP in direct equity instead of a good fund house. It is very, very difficult to do portfolio construction…so it will be a brave person to add good companies to his “portfolio” and make money for himself. He is better off being the unit holder.
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