Systematic Investment – What one ought to know…

Systematic Investment is nothing more than a method where one invests regularly with discipline. There are different terms – SIP (Systematic Investment Plan), DCA (Dollar Cost Averaging), RCA (Rupee Cost Averaging) but they all essentially mean the same.

One may have heard the phrase such as  ‘SIP Strategy’ but it is a misnomer. SIP is more of a method. It is likely that the discipline is so rare or the impact of discipline on returns is so high that it has come to be called as a ‘strategy’. For puritans: there is a difference between ‘method’ and ‘strategy’.  ‘Method’ signifies that one sticks to the steps and carry out the plan. Accent is on discipline and meticulousness. ‘Strategy’ involves high level planning where some level of thoughtfulness and intelligence is involved.  SIP works simply because it addresses the human element by eradicating it.

Top reasons why ‘investor returns’ do not become ‘investment returns’:

  • Lack of discipline
  • Higher intelligence and emotions leading to tinkering
  • Abundant presence of human element

How SIP addresses the above?

  • SIP enforces discipline
  • SIP is dumb and shuts the intelligence/emotions from playing any role
  • Removes anything and everything human

There are several misconceptions about SIP and one ought to know the below:

  • SIP is an accumulation method for equity overriding the emotion and to inculcate discipline. Nothing more. Period.
  • There is no notion called ‘SIP Returns’. If there is one, it is simply episodic and gleaning any insights as to how it beat the market or lumpsum investment is simply a perspective which is coincidental.
  • SIP is an efficient ‘time-scattered gathering transport vehicle’ for accumulation of equity.  Measuring the efficacy of SIP should reflect  how it took care of ’emotion’ than what it did to ‘returns’ while gathering.
  • Markets are slave to the earnings and SIP does not hold any magic wand to eke out ‘returns’ from the market under any market conditions.
  • One can torture the data to show SIP is superior or inferior choosing a period. It does not reflect on SIP but only on who did the exercise. SIP is quite agnostic to the realm of ‘returns’ as it is simply a method of discipline.
  • SIP works for two reasons: Markets have an upward bias over long term. It helps accumulate equity with out wavering. Markets will have to do the rest. SIP returns is not the measurement of its efficacy.
  • If one is not hopeful of markets over a long term, SIP cannot change it. Say goodbye to SIP and equity.
  • SIP can be done by: Self, Assisted, Entrusted.  On any instrument one feels comfortable and has the expertise – direct equity, ETFs and MFs. Accent is on discipline.
  • Timing the SIP: Good luck! Less said the better. Catching the inflection points of market turns are very hard and being out on few select days in the markets can pull down your long term returns significantly(Read this blog). Markets often move on anticipated outlook and not on P/E or any trailing metrics that one may conjure up.
  • SIP is not the panacea for everything that ails an investor – it is simply one of the cornerstone of the execution plan.  Results of such disciplined approach is the fundamental for investment returns – not SIP returns 🙂


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