https://www.youtube.com/watch?v=_-CxisuWmTM
The mutual fund industry (including its trainers) have shouted so much from the top of their voice that most clients feel guilty about stopping their SIP. This is ridiculous.
SIP is at best a SAVING strategy like Recurring deposit. I think we should stop looking at it like an Investment strategy.
SIP does not ELIMINATE risk, but yes it dramatically reduces the shock of lumpsum investment.
I do believe, for a retail investor, the best way to take exposure to capital market is through the mutual fund route. This is because mutual funds are managed by professionals who keep track of the every development in the world of economy and finance, taking calls which will work well for the portfolio and consequently its investors. When it comes to investing in the current market, one can consider SIPs/STPs in mid- and small-cap schemes or even dynamic asset allocation schemes.
https://www.youtube.com/watch?v=Ye23eGyz-24
Having said all that let me tell you why a few of my friends and ME MYSELF have either stopped (I used to do a big sip into an ultra short bond fund, I have stopped one and reduced the other) or dramatically cut back on the SIP amounts.
Let me not get specific about my own projected income – I expect training to go down in the quarter starting May. So May, June, July is expected to be a washout – and income may not allow much investment possibilities. I use my dividend income to buy equity shares in the companies where I get the dividends from. To that extent that cash flow is not available. I have close to zero interest income. My rental income is likely to go to zero in Feb, and I will have to take a call on that RE investment (which I do not need any longer). So honestly, I will have to wait till September to go and committ to a SIP.
Now I have friends who are in senior posts, owners of businesses (hospitals), doctors, etc. Most of them are shit scared of the forthcoming cash crunch. They are not worried about their day to day living, but most of them are shutting their SIP for 3/4 months. Fair enough – conserving cash is the most important thing that a businessman does. One of them spent Rs. 75k to fly his son from Europe to India. One of them has dramatically repaid his term loan while keeping his bank overdraft on. His logic? he wanted to reduce costs – and remember 9.15% pa interest is not small. Another friend called me and after talking to me broke his bank fixed deposit and repaid the bank loan. Obviously his SIP has gone for a toss.
None of my friends are likely to withdraw desperately from the equity market, but one friend withdrew from the equity market at the PEAK – 41k sensex. No, not any intuition, just that he wanted to book profits and the grandfathering meant he was not making more than Rs. 1 million profits. He wanted to pay tax on that and use the money to buy some direct equity. Not yet deployed — a little deployed – about 20%. Thats sheer luck.
SO DON’T GET CARRIED AWAY byt the propoganda that SIP should never be interrupted. It should be. If you have lost your job, you BLOODY WELL sit on cash (I know it is unprofitable). If you are a businessman it is your DUTY to anticipate working capital problems. If you are a senior executive above 50, expect retrenchment.
Stop falling to the propoganda.
Neelkant
Nicely written
What about people who have a regular slow of income – like government officers ?
Abhay
Excellent article.Really contra to what industry preaches , also realistic.
Srini
The idea of creating an emergency cash reserve is to take care of such unprecedented events. The problem many face is not having enough to provide for such events as they think it can’t be for me.
Sans
What coincidence, I stopped 2 SIP in FUSTF to convert it to RD for the short term. Reason:25%pay cut.rest of equity SIPs are on.
Shailesh Sampat
Sir I am telling since 2016 that Don’t look SIP as a wealth creators it is just accumulator like piggy bank but MF Industry has highlighted it as a wealth creator and biggest joke is that they have choosen WB’s quotes with twisted meaning for promoting SIPs. In reality check WB has never done Idnvestment through SIP like strategy.
Rahul
Sir I Want To say I completely agree with the points that you mentioned in your blog that SIP does not help one to generate good returns on investment in comparison to mutual funds which are managed by the fund managers and they know the risk and reward associated with investment and helps better ROI in comparison to SIP.