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POSTED BY ON November 24, 2010 9:10 pm COMMENTS (4)
ICICIDirect.com has introduced the Equity SIP option sometime back.Will this work?
I recently got a mail from them explaining with example of a bluechip company.If the scrip was bought 1 per month for 10 years ,you would be sitting on huge profit.
For a non regular investor who doesnt want to check about markets every day,will this work out or would you say MF SIP is best.
What if i make SIP to buy 1 Index fund(NIFTYBEES) per month will that make sense since i am not making concentrated risk on single stock?
If you were to start ,what will be the 1 stock you would like to buy every month in equity SIP?
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Manish,
First, 5-6 stocks means each stock has on an average 16-20% part of your portfolio. Above 5-6% of your portfolio in a single stock is very risky. Anything can happen to any stock in the future!
Second, by doing SIP in multiple stocks vs SIP in MF, you are saving on the fund management charges of 2-2.5 % per year but losing on the transaction costs (0.55-0.8%) per buy and also losing on the professional management of the fund.
Apply the cost-benefit analysis to this situation. 🙂
Stock selection appears very easy in a big bull run, but try applying that in a correction, when stocks easily go down 20-25% (eg. in past 20 days, SBI lost 18%). So unless you have good knowledge of analysing the companies and the markets, you should not do this at all.
“Past performance does not guarantee future results”. Ever.
Ramesh
In my view, an SIP in a single stock is not at all advisable. There is no diversification. And it is a given, you do not know much about the stock markets. It is always, repeat always, better to have a well-diversified portfolio with a good management. So, my advise go with a MF.
No single stock per se is guaranteed to do well over long periods. The underlying company may do well but the stock, not necessarily. eg. stocks of Satyam and Hindustan Unilever.
If you can identify 10-15 good companies or even 20, go for equity SIPs and manage them well. Dont bet on 2-3 companies.
Ramesh
I agree with you on that , but what about people who do direct investing on their own , and do fair ! .
For them does it not look good ? Also what are your views on SIP in 5-6 Stocks, which will take care of diversification part in some way ?
Manish
Prabeesh
SIP in a share and MF , can be compared to the one time pruchase of share or MF, even a SIP in equity would be volatile , as it would depend purely on the volatility of the underlying share . So if stock moves 20% up in 1 week and then down 30% in next week , you can imagine the volatlity , it would be lesser than the one time investment in stock , but still it would be high compared to a MF SIP , as MF would have diversified the risk across many scrips .
However for some one who is looking for long term investments and want to directly invest, SIP in shares look good . I would choose Reliance or Bharti for long term . No strong reasons apart from the fact that I see them in business for long term and prosper further 🙂
What do others feel about it ?
Manish