July 11, 2016
We advisors categorize our investors under two categories – a) those who have limited savings and they invest their savings to meet their financial goals & b) those who have surplus and their sole objective is to earn better returns to add more wealth. The first category is known as retail clients and second category is regarded as High Networth Individuals or HNIs.
Investment products and the mode of investment differ for both categories. HNIs can take higher risk compare to retail investors and can invest in products that require larger fund allocation for investment. It is well established fact that in longer run barring few exceptions equity market offers much higher returns than any other asset class. They also offer much better liquidity and one can invest very small amount into the same. And the fact that it also offers facility of partial redemption makes it more attractive investment destination.
One of the modes of investment into equity mutual funds is investing through systematic investment plan or SIPs. One can start investment into equity mutual funds with as small amount as Rs.500/- per month. Because of this reason for long this mode of investment was regarded as poor man’s requirement and HNIs largely have shied away from investing through SIPs.
Everybody chants the mantra “Invest at low and exit at high”. It is now an established fact that while you may be successful in timing the market 8 out of 10 times but the two times missed costs you heavily and take away good portion of profits that you earned on successful bets. And many a times in their pursuit to earn higher returns based on their gut feelings and prediction from many media experts, investors overexpose themselves to a particular asset class which exposes them to unwarranted higher risks.
Beauty of SIP is that using this mode of investment an investor unconsciously time the market and in much better way. This is known as power of averaging. It is because you are investing at low levels also if markets are going down and exit only when you have achieved your target. Slowly & slowly HNIs have also started recognizing this power of SIPs.
Our investors are going a step further to use this power of SIPs to create wealth and to maintain balance between debt and equity. We have advised our clients to invest into high yield, good quality bonds and other debt instruments that pay regular interest. They invest the interest proceeds they receive to invest through SIPs into equity mutual funds. This way they are not only able to preserve their capital but also create good wealth benefiting from the returns earned from equity markets.