SIPs: Are they really evergreen or just a mirage?
By- Mr. Gaurav Goel,
(Entrepreneur and SEBI Registered Investment Advisor)
Delhi. Beauty of an ocean lies in the fact that it can be both serene as well as rough. On a bright and sunny day, it is pristine, calm and sparkling whereas on a dark cloudy day, it can be torturous and dangerous.
Equity markets are much like an ocean- beautiful or deadly on their day of choice. Just like weather, there is no certainty as to how it will behave on a given day. There are numerous factors in variable and disproportionate magnitude that contribute to the performance of equity markets that make daily predictions equivalent to playing with fire. Yet people love to predict and speculate short term outcomes as the scent of equity markets is amazingly intoxicating, The attempt at short-term prognosis can be best described as a mere guesswork and is devoid of consistency in positive outcomes. Most often than not, the end result can be scary with positive outcomes getting outnumbered by their negative counterparts.
Paradoxically, the long-term predictions based on historical evidences, fundamental choices and wise behavioural attributes can be extremely successful and rewarding. Yet, followers of the long-term cult are in a big minority. The intoxication of short-term equity thrill remains unmatched when compared to loneliness and sterility of long-term behaviour. Most long-term charts of equity indices are alluring upward sloping curves. However, if one takes a microscope and study any small portion of this curve, this allure will turn into horror.
One more acceptable and a great way of playing the long-term equity game is called Systematic Investment Plans or SIPs. These plans involve periodical investment usually at a fixed frequency over a period of time without any effort to time the markets. SIPs are a great way to invest in equity markets for a long term as they average out the cost of investment over its life term. Investor ends up purchasing units at fixed interval irrespective of the market levels and without intervention of known human psychology barriers to investing. More units get purchased at lower levels and vice versa. SIP’s, when invested for long periods of time, allow compounding effects to kick in, resulting in unimaginable amount of wealth creation. SIP can be started at any given point of time without caring for valuations if the time period is long. This also removes the indecisiveness around timing the markets. These features make SIPs an evergreen investment.
Every good thing comes with its own sets of pitfalls. In case of SIP’s, the pitfalls originate from perplexing human minds. SIPs require discipline and devotion to carry on with the investment philosophy even during the periods of distress. Yet, when the reality strikes and there is clutter all around, the human mind has a tendency to fall prey to the viciousness of the noise around it and stop the investment plan. It is not easy to digest losses and keep investing when the headlines scream otherwise. SIP dream of creating unbelievable wealth can turn into a mirage very soon.
True success lies in believing the mantra for success and sticking to it. Falling prey to evil forces in the outside environment and within our own mental ecosystem is most avoidable. Those who overcome the greed and fear will emerge victorious. Victory is sweet in this case and comes after a fierce battle and hence rewards are also geometric in nature. SIP as an evergreen, enriching instrument of success or an unfulfilling mirage is a choice an investor should exercise carefully.
