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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  1. yes Advait. These are blue chips as of NOW. Even now I have a doubt, but that is a different story :). Go to the Index 30 years back…and see how many have survived. Your selection suffers from a ‘survivorship bias’ – see Google or Parag Parikh’s book to know what it means..or even in this blog search for ‘survivor-ship bias’…

  2. I THINK FINACIAL PLANNERS LIKE YOU SHOULD ADVOCATE DONATION AS WELL. IN TODAYS TIMES WHEN PEOPLE CAN CERTAINLY AFFORD SMALL DONATIONS LIKE RS 500/PM ETC. THERE ARE VERY GOOD WEBSITES LIKE
    http://WWW.WORLDVISION.IN
    BHOOKH.COM (U NEED NOT DONATE ANY MONEY HERE !! JUST CLICK AND DONATE)
    FREERICE.COM (U NEED NOT DONATE ANY MONEY HERE !!)

    EVEN UNICEF INDIA HAS STARTED MONTHLY ECS DOANTION
    http://www.unicef.org/india/support_1640.htm
    http://www.saveourtigers.com
    http://www.savethechildren.IN

  3. Advait,

    Let’s take Hind Lever. Had you done a SIP in HUL from 2000 (last ten years), guess what would have been your returns now (at the end of 2010)? Do the calculations yourself but my guess is returns won’t have been more than that of a bank FD!!

  4. holy cow.why donate to the UN babus to save tigers and children?. save them yourselves.!
    tigers arent going to be saved by sarkari babus.forget about it.

  5. Subra sir,

    What I understand from this is that doing SIP in a single scrip should be avoided. But SIP’s in mutual funds is fine as they are collection of scrips (large cap, mid cap, etc…) ??

    Please correct me if I am wrong.

    Abhinav

  6. Dear Subra “UN programs – what a joke!” can u explain this? as i am considering to donate some amount. please enlighten me
    Dear pravin
    saving tigers and children is not through UN !! there are some reputed NGOs which are into this…

  7. hi ak Patel,

    aidindia, akshayapatra, are all doing fantastic work, seen it first hand. See the kind of work people like Chandra Anil (vested interest she is a cousin, having said that, she gave up a fantastic career (engineer BITS Pilani) to be here.

    Can assure you the money will be well spent. Do not like organisations with HUGE overheads..etc. UN organisations are nice, big, …but how much really happens to reach is a big question mark.

    so if you wanna give, LEARN whom to give, how to give, when to give, what to give, how to give. Signing a cheque is easy, but you do not want that money to fund somebody’s car or a J class air ticket, do you want it to?

    Earning, Growing, Protecting, and Giving away of wealth all are IMPORTANT, complicated (has to be learnt) and then done.

  8. Dear Subra,

    Certainly agree with you regarding akshaypatra …. it is also in one of my prospective list of the organisations where i would like to put my money….
    (However as per news paper reports in ahmedabad, from where i belong to, akshaypatra is “charging” very heavily for “donating” food in the local civil hospital !!)
    I Would also like to state that please do not brush all the large organisations with the same brush..
    Would appreciate if you share some more similar ideas.
    Thanks.
    Jai Hind.

  9. My only intention was to request you to spread this message for donation (where ever you find it fit)..by no means the list that i gave was exhaustive…. i only intend you to alteast direct the peoples thought in that direction through your blog

    Thnaks
    Jai Hind.

  10. What about GiveIndia.org? They had a huge list of NGO’s from whom they fetch feedback how your money is spent. But the problem is they are charges 10% of the amount you donated as charges for their maintainance!!!

  11. This is exactly what I do. Invest 5k every month in a suitable scrip from my portfolio, or a new scrip. So you are saying it doesnt work? I am not red in 3 years, i am green and decently green.

    If I shouldnt do this then what? SIP in MF, yes but MFs have become like gambling. 2 years a fund does excellent, then 2 years horrible. How can one track them? portfolio change kiya, kya kiya, manager change kiya, sab andar ka news to delayed hota hai. and so difficult to keep track.There are stable funds also, but dont want to do all my investment in funds.

  12. KalpK – judging yourself over 3 years (2008,9 and 10) – a peculiarly volatile period, is no way to judge. What Subra seems to be saying is over 20 years ..without survivorship bias or hindsight bias it is almost impossible to create a well balanced averaged portfolio

  13. hi KalpK and Rohan,

    agree with both, partially. KalpK not sure what is your full time job, but if you have outperformed Hdfc top 200, Hdfc equity, Icici Pru Dynamic /discovery (same amount same dates as ur own investment) – you should be applying for a f m ‘s job…Fund managers get paid well. Too well if I may say so…

  14. Subruji you always say dont look at past performance of MFs, and now?:-). I wonder if you would tell me the same funds 3 years ago if we were talking of the future. I am not going to do the exercise that you asked, because its the past and thus you are at an advantage. But I have done the same exercise for nifty and total nifty and i am better than those two indices. May be I can do what u say for the next 3 years, but tell me one fund name.

    Actually I lost faith in MFs during the 2008 crash as they (my investments) didnt recover as much as the index and my equity. But yes, I am thinking of going back to MFs in form of SIP and now I have fund names from you 😉

  15. Hi Subra,
    There is one interesting article in today’s Eoconomic Times Wealth. It shows sensex returns of consecutive 11 years to be less than 4% CAGR. Also, the article mentions japan’s example to show that it is important to time the market.
    You have also agreed that it is difficult to have 9% annual growth for 3 decades. What would you say about current market conditions?

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