SIP is it really good or is it hyped

Is this a question that has been uppermost in your minds?

I have been saying put money into an SIP with a good fund and go to sleep’ – and I have been blunt enough to tell you which funds too. Now, is this applicable to all the people who read this blog? No. Of course not.

People who have stock picking skills (or who think they have stock picking skills) surely do not need an SIP. Do I expect a Portfolio Manager or an active fund manager to need this advice? I doubt it. I have a few friends who are CXOs who are happy doing a SIP. At last count there were at least 6 CEOs, 12 COOs, 5-6 CIOs, …who I know are doing SIPs.

I also know it is easy to pick up a period in time and say ‘If you had stopped the SIP in this period you could have saved so much’. I was in the market when there was no index, when the index was at 100, at 2,000, at 4,000, and at 21,000.

Imagine a person who had entered at 3,000, and at 6,000 said ‘it is too high I will not invest till it comes down to 3,000, He would still be waiting. Seriously we all have a 20/20 hindsight.

The reason why we all have SIPs is simple is to keep our brain out of investing. http://www.subramoney.com/2011/09/your-brain-is-your-investment-enemy/

Also there are sometimes when out of sheer laziness you miss 2-3 installments by not going to the bank to make the investment. In case of a SIP you avoid such mistakes.

If you had started an SIP when the index was at 2,000, then watched it go to 21,000 and then go down to 9000 and now at 16700 believe me you would have made a lot of money. Now intelligently if I said, when the index reached 19000 (the p/e was too high theory) if you had stopped the SIP and started it again at 17000 (on the way down) YOU COULD HAVE GOT AN EXTRA 4% p.a EXTRA. Sadly this is hindsight.

I do SIPs no doubt, but I am largely a direct equities guy. To do direct equities you surely need :

1. A large ability to wait. Like a croc waiting for 6 hours for its prey
2. A decent big picture vision. Like an eagle, you need the big picture.
3. A good hang of the numbers – helps to be a CA and have a suspicious mind.
4. Training as a lawyer. Reading the directors report with a lot of suspicion..and reading between the lines
5.  Experience. It cannot be taught.
6. Friends in the business. On my dial pad are a lot of useful people whose distilled experience would run into 7-800 years experience. 
7. Ability to run screens – as well ask a tech query to a fundamental guy just to check the worth of doing the transactions.
8. Discipline to make rules for transactions over an X amount (say Rs. 10,00,000) and the skill to do tactical changes for smaller transaction say Rs. 2,00,000.
9. Ability to break rules – and know why you are breaking them.
10.  Cut losses on trading positions and build positions on investment items when the chips are down.
11. Having friends who will skin you alive for your mistakes, show you the mirror, and show you the difference between skill and luck.
12. Having a great broker (God does not make them anymore)
13. A good hang of the compliance, law, etc. – useful, if not critical.
14. Ability to speak to 3-4 people b4 doing a big transaction.
    
    The author P V Subramanyam is a Chartered Accountant by qualification and a financial trainer by profession. Writing being a passion he also regularly pens his thought in his blogSubramoney.com