Big SIP numbers: Beware of what’s about to come

The SIP numbers have just been announced…and they are big. ₹19,000+ crore big. These are also record numbers.

Here’s what’s about to happen…

First, everyone whose paycheck depends on selling you more SIPs is going to congratulate you, the retail investor. Some will label you “matured" as an added measure. You see, the best way to make a sale is to pat the customer on the back for the good choices they make.

Second, the finfluencers, who perhaps don’t make money selling SIPs, but resort to it because it’s difficult to evaluate the outcome of such recommendations for years to come, will put out videos praising your decision. These will have faces with big open mouths…apparently amazed at such large repetitive numbers.

Third, social media gurus, who are short of ideas because of the short week, will boost the news of the large SIP numbers, filling your timeline.

Fourth, the stock market gurus will use this data to make a case for even higher stock prices. You see, they will tell you, the Indian investor has changed. (Yeah, right).

Fifth, the regulator (SEBI), who has nothing but your best interest in heart, may not make a social post. But AMFI, an industry lobby, will probably gloat over its “mutual fund sahi hai" marketing success.

Dear reader, other than taking up your time (they have already taken your money), this will mean nothing to you. Rather, should mean nothing to you.

What should alert you, however, is a totally different segment of the market.

The one that is going all out and getting you to do even more SIPs.

You see, I just cannot get why someone needs to have more than two equity funds in their portfolio. And a total of perhaps five to six funds (including debt and liquid). But the fact is that if you did stick to this, a lot of people will miss their SIP targets. So, don’t expect anyone to back me up on this opinion.

On the contrary, expect a whole range of new schemes to be launched. There’s momentum after all! And, since the selling season has shifted, expect sectoral and thematic schemes.

I can safely say, that for a large majority of readers almost all such schemes will have no place in a portfolio. And yet, they will find their way in!

Via our column, Contramoney, we have argued endlessly, with almost no impact, that SIPs are only a means to an end. That’s all. So, you can do an SIP in a good fund, and get a good result. And you could do an SIP in a poorly performing fund and get a poor result. And of course, if you do SIPs in six equity funds, well, you might as well just do an SIP in one index fund!

But what do we know? Everyone we meet and interact with has a bunch of SIPs on. And they are always looking to add more.

Yet we labour on.

In our view, a simple and effective investment strategy is thus…

First, figure out your entire asset allocation. Of the amount that has to go into equity, decide how much in direct stocks and how much via mutual funds.

Second, for the mutual fund component select perhaps two diversified schemes. Research deeply. Once selected, research again. Remember this is a long-term commitment. If you don’t have the skill, find a “trusted advisor". And if that too does not work, just stick to index funds.

Third, keep investing in the selected funds both via SIPs and lumpsums. When markets fall sharply, try, and put even more money to work.

That’s it. It’s this simple. Perhaps too simple for you to believe that this approach works.

I hope you will take heed and simplify the “mutual fund" component of your asset allocation. And in the process set yourself up for potentially better long-term outcomes even if this means hurting the prospects of all those who are hell-bent on selling you new SIPs month after month.

Meanwhile, prepare yourself for the social media barrage of congratulatory messages on hitting a new SIP high…

Phew.

Rahul Goel is the former CEO of Equitymaster. You can tweet him @rahulgoel477.

You should always consult your personal investment advisor/wealth manager before making any decisions.