SIPs are a hit. Congratulations! Now, here’s the bad news
In fact, data from AMFI—the mutual fund lobby—as of June 30, 2023, shows that a little over half of the money invested by retail investors in stocks through the mutual fund route stays invested for a period of just greater than two years (51.4% to be exact). So much for SIP being a solution to achieving long-term goals. The ideal process should be: First, draw up a financial plan, and the corresponding asset allocation to meet your goals Second, start investing in line with that. When it comes to equity mutual funds, be sure to get your schemes right, and that too in the right allocation.
Furthermore, temper your investments in keeping with overall valuations. If markets are very expensive, invest the least you need to. When markets are cheap, top it up with additional SIPs, and even lumpsums if possible.
(Most gurus who advise SIPs will tell you they made their wealth doing exactly this – investing a lot when stocks were cheap). Mutual fund flow data for recent months shows that most investors are failing on both these counts. My advice – take corrective action now.
Having taken you to one extreme about SIPs, I must temper my view somewhat. You see, if you have selected your schemes well, then an SIP may not be a terrible idea. Especially if you are not a disciplined saver.
But even there, I would suggest a more discretionary approach to allocations as against a fully automatic approach. For this you need a trusted advisor. Here’s mutual fund veteran S Naren, of ICICI Mutual Fund, one of the few fund managers who calls it as it is, in a recent interview to MoneyControl: If you had done SIPs between 2006 and 2013, it would have delivered no returns. When I tell this to mutual fund distributors, they don’t even think it
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