SIP creates wealth in the long run, however it gives no immediate gratification. Equity trading (what the common man thinks is investing) gives immediate gratification and does not create wealth for the client. The broker wants him to trade so that broker’s wealth goes up.
So what is the solution?
Sell SIP in equities as a fantastic product. The call goes something like this –
“Sir in volatile markets you should be investing in small lots instead of lump-sum, so we have an EQUITY SIP …it works like this. Every month you invest Rs. 5k in a scrip that we choose, thus you create a portfolio”
Sounds good, well it is not. Averaging works only in a portfolio – rupee (dollar) cost averaging – which is what SIP helps you do DOES NOT WORK IN CASE OF A SINGLE SCRIP. Imagine if you had bought silverline at Rs. 1300 ….and you are still averaging, you would have been wiped out. In case of a large cap mutual fund, the ups and downs are not so steep, so you can do an SIP.
With a single scrip you can average, but requires tremendous amount of information, and skill. Do not fall for such sales pitches. You will be red in 3 years time!
This actually reminds me of a Ben Graham quote:” The individual investor should consistently act as an investor and not as a speculator”
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