When markets reach all time highs we are always told SIPs are the best way to invest in equity. Just starting an SIP is seems as a formula for success. Initially, this works extremely well. But, when markets peak out, the problems begin.
While all of know SIPs are a Great way to deploy money into equities, not all SIPs end up being successful. The SIPs started in tech in 2000 and infra in 2007 never really did well. They failed to earn positive returns for years and actually may not have compounded enough to beat long term inflation. Investors who stopped them in sheer vexation never returned to markets for many years. What went wrong? Afterall, a good number of investors did well with SIPs during the same phase. What makes some SIPs tick?
While SIPs are good, choices are critical. Choosing in which part of he market your SIP must run is very critical. While it looks simple, it is not easy. The reason is the manner in which we arrive at our choices. We mostly choose the funds which show the highest returns over he recent past. This often leads to our buying SIPs into funds when their peaking out and then continuing them when they lose sheen. But, does this happen only to us?
Strangely, around market peaks, most Indian investors choose to start SIPs only in the wrongly chosen funds. This Makes them easily disheartened.. Often, investors drop out midway never to return again.
What cause the idea of SIP To fail ? One needs to understand that while SIP is a healthy way to invest, choices must be extremely carefull. We should choose funds that will do well over very long periods of time.
At the time of choosing, you are likely to see several better performing funds. This will tempt you heavily to invest based on past performance. Often, funds chosen this way tend to fade away conceding most performance gains easily. Often we see these SIPs even dipping into losses. It is chooses funds which provide a sustainable long term performance. While looking at them we must choose with the intent of ensuring a long relationship and enduring faith.
Placing faith in your investment is crucial. Placing faith in the right choices is critical.