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Keep Your Mutual Fund SIPs Simple: All About SIP – Axis Direct
AxisDirect-O-Nomics
Nov 14, 2018 | Source: www.valueresearchonline.com
SIPs Are All About Simplicity
The value of SIPs lies in their simple, low-maintenance nature. Nothing is to be gained by making them complex.
In most products, features’ are generally thought to be a good thing. Whether its cars or mobile phones or vacations or houses, the more the features the better the product is supposed to be. However, when it comes to financial products meant for savers and investors, this passion for features is a problem, since features tend to obscure the inherent attributes of a product. Worse, when the disease of featuritis afflicts financial concepts like mutual fund SIPs (Systematic Investment Plans), whose very reason for existence is to provide simplicity, then the problem becomes very serious.
However, the bigger problem is the idea that there is some magic to the very simple concept of investing in a volatile asset by averaging your cost. All that the idea of an SIP is, that you should keep investing a fixed sum regularly in equity fund, regardless of market conditions. Over a long-term, you end up buying more units when the markets are down, and fewer, when the markets are up. Thus your average purchase price is much likelier to be less than what it would have been otherwise. Therefore, when the time comes to redeem your investments, they are very likely to be worth more than what they would have been. That's all there is. There are no guarantees, and there are certainly no fixed formulae of expected returns. Hypothetically, if the stock markets were to go into a general long-term stagnation or decline, then it won't work out. But in the real world, since you are investing in something that has a high volatility but a general trend upwards, you'll come out well.
However, the value of an SIP is not in the maths, but the psychology. It's the simplest way of investing regularly and getting good returns from equity without having to worry about when to invest and when not to invest and often missing out on the best opportunities.
Of course, mutual fund markers have exploited the attraction that complex, feature-laden investment options have for investors. There are a number of SIP plans to which market-timing has been added as a feature. There are AMCs and advisors who'll raise or lower your SIP amount based on index levels or PEs or such tricks. This is ironic because avoiding market timing is the whole point of doing an SIP.
If there's one investment technique where keeping it simple and avoiding every complexity is of the highest value, it's SIPs. In other words, keep calm and keep investing.
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