January 13, 2011 12:58 pm
Recently i have been approached by HDFC Securities with an option of SIP to buy stocks. Is this a good option to consider investing in the markets?
I agree. SIP in mutual funds have a advantage of diversifying your risk and money in 20-30 different sectors and companies. If you’re investing the whole amount in single company, you’re taking much higher risk. Leave this option.
Hope it will help you.
Here is a post from subra
SIP creates wealth in the long run, however it gives no immediate gratification. Equity trading (what the common man thinks is investing) gives immediate gratification and does not create wealth for the client. The broker wants him to trade so that broker’s wealth goes up.
So what is the solution?
Sell SIP in equities as a fantastic product. The call goes something like this –
“Sir in volatile markets you should be investing in small lots instead of lump-sum, so we have an EQUITY SIP …it works like this. Every month you invest Rs. 5k in a scrip that we choose, thus you create a portfolio”
Sounds good, well it is not. Averaging works only in a portfolio – rupee (dollar) cost averaging – which is what SIP helps you do DOES NOT WORK IN CASE OF A SINGLE SCRIP. Imagine if you had bought silverline at Rs. 1300 ….and you are still averaging, you would have been wiped out. In case of a large cap mutual fund, the ups and downs are not so steep, so you can do an SIP.
With a single scrip you can average, but requires tremendous amount of information, and skill. Do not fall for such sales pitches. You will be red in 3 years time!
This actually reminds me of a Ben Graham quote:” The individual investor should consistently act as an investor and not as a speculator”
Source : http://www.subramoney.com/2010/12/sip-works-only-in-a-portfolio/
Absolutely worst strategy. (Btw, this is the third time, I am writing this comment for SIP in stocks rather than MF). 🙂
It will be a good learning experience if you ask them why should one invest in a stock through SIP!!
Your email address will not be published. Required fields are marked *
Please subscribe me to your Email Newsletters
This site uses Akismet to reduce spam. Learn how your comment data is processed.
Download Our FREE Ebook!
Available only for first 100 people today
New here? Create an account