SIP with caution, says top fund manager, causes a stir in industry

economictimes.indiatimes.com:

ICICI Prudential Mutual, in the presence of an army of top investment advisors and distributors, underscored the risks of investing in expensive stocks even in a staggered fashion, among other issues, in a rare instance of an experienced industry insider spelling out the trigger warning explicitly. His speech was pulled out subsequently; some said it was because of a lack of the company's compliance approval, while others speculated the influential distributor lobby did not want it to come out. Nonetheless, the remarks have set the cat among the pigeons.

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According to Naren, if an investor puts money into the wrong product through the popular Systematic Investment Plan (SIP) at the wrong time, it means trouble. He was alluding to the continued flows into equity schemes that bet on small-cap and mid-cap stocks — considered expensive even after the recent sell-off. Naren highlighted a few periods when SIPs as an investment plan would have lost money for investors. These included phases like 1994-2002 and 2006-2013 when SIPs in mid-caps would not have yielded any returns; on the contrary, the investment strategy eroded investor money.

The word of caution is noteworthy as it's coming from a stakeholder. It is also significant because few in the tightly-knit powerful triumvirate of mutual funds, distributors and personal finance experts have warned investors of the pitfalls of wrongly directed SIPs. Those who believed so have kept mum fearing a backlash.

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