Why is SIP Bad?

SIP termed as Systematic Investment Plan is a mutual fund investment and some investors consider it to be bad investment for various reasons. 

Although fund managers navigate your funds through the stock markets and help you to obtain at least 20 to 25 percent returns yearly still, SIP funds have certain limitations. 

Limitations of SIP Investments: 

The investor can make a SIP investment from a minimum to maximum amount as defined by the fund management. But there are limitations laid by the AMC in operating the investments which makes it to be said as  SIP to be a bad investment. To note a few, 

In a Systematic Investment Plan, you can make an agreement to make an investment weekly, fortnightly, monthly, quarterly, etc. 

The usual date of SIP amount that gets debited from your bank can be 1, 5, 10 etc. You will have to select any one date from the dates listed by the fund management. 

You can bring out a change in the course of action of the debited amount only when you inform the fund management at least 15 days prior to the date of SIP payment. 

Moreover, the fund manager shall debit the mutual fund units whenever you plan to make a partial withdrawal of your funds on a nominal fee. 

It is called the exit load fee and is usually dependent on the nature of the fund, and the portfolio the fund manager has put it operational. 

You can come across instances wherein the stock markets might be performing better but the return on your fund invested can remain moderate with less returns.  

To avoid the SIP bad effects you must follow the thumb rule as mentioned below. It defines the parameters to center-stage the profitability that keeps you away from incurring losses. 

Mutual Fund Selection for Making Profits: 

Portfolio Diversion: 

You must diversify your portfolio and under ideal conditions you must choose about 5 to 6 funds. 

Consistency in Investment Style: 

You must invest in funds when you find consistency in the style of investments by the fund management team.

Your investment must reflect the investment strategy of the fund managers who maintain the AMC. 

Reducing the value of a Low Expense Ratio:

You must select a fund in instances where an asset management company makes balanced investments on portfolios as it may impact the investor in the long run.

Stocks vs. Mutual Funds for Long Term Investment

Your question, ‘Are Stocks or Mutual Funds better Long Term?’  defines several factors to be known by any reader and, for that matter, many do not understand the basic course of action that takes place in stock business or mutual fund business. Moreover, the term long, and short in reference to investment/trading is more a time bound relationship. 

In crisp, to say, companies shares put in stock markets for trading and mutual funds are collective stocks of varied companies pooled-in under specific portfolios. In both cases, you can make investments for short term or long term. 

In stocks, the shortest term is the intraday ( single day) trading and longest are the futures and options trading ( from few weeks to few years). 

In mutual funds the investments made up to a period ranging from one to three years are short term and above three years is considered to be long term investments.

You asked what is better investment, stocks or mutual funds for a long term? The answer should be self-judged and only after analysing the facts of stocks and mutual funds. 

Stock Operations in Markets: 

Stocks do operate in a highly volatile environment and with the stocks prices fluctuating up and down throughout trading sessions, makes it difficult to profit on your investments.  

You will have to make highly accurate statistical analysis such as exponential moving averages and predict the probable resistance, and support for buying and selling stocks. 

Still the stocks become unpredictable because the good news of the company can hit the stocks upper circuit and bad news can hit the stocks lower circuit. Hence, you must remember that day trading ( intraday trading) may not reap you good results. When you enter into deliveries you may incur huge loss as the intraday trades are extended to the next trading sessions. 

For long term investments, you will have to opt for futures and options for a considerable period like 1 year to 5 years and above relatively. In this case, your risk zones shall reduce and reap you high returns.

In stocks you can make huge money in the long term but you will have to frequently study the market credentials and change the exit positions to book more profit.

Mutual funds are operated and regulated by fund managers and the possibility of incurring loss in the short term is less, and you can reap between 20 to 40 percent returns in the long term, say from three years and above. 

In mutual funds, you can opt for exiting the fund but you will have to make payments on exit fees, and other relevant charges. It can reduce your profitability. 

You can exit the mutual fund in long term investments and you can do any time during the stock trading hours. 

On opting for exit from mutual funds, you will be made payments as per the existing rate at that time. Therefore, mutual funds are relatively less riskier than the volatile stocks that attract huge profits with a higher level of risk factor. 

Comparison of Loss on Investments:

As fund managers make investments in different stocks/bonds of a portfolio you shall incur less loss in contrast to the investments made in single stocks. With the fall in the stock price the possibility to incur loss on your investment is more. 

Conclusion: 

Hence, if you are patient enough, invest in stocks for the long term to reap huge profits with the involvement of a bearable risk factor or leap to mutual funds for reasonably good long term profits otherwise. 

Which is Better Stock or SIP?

Individuals can obtain stocks of a company either through IPOs, OTC, or stock trading and become a shareholder, which means, you are part of the company in framing the policies of the corporation. In a way your opinion will matter in the policy formulations. 

Let us restrict our conversation to stocks, it is buying and selling of stocks in the stock markets. Whereas, the Systematic Investment Plan, SIP, is an investment method used in mutual funds. Individuals can make planned monthly investments in the funds that determine the portfolio and earn money to beat inflation. 

You can make good returns on SIP investments and high returns on stock investments. In both, you can find a similarity, stock experts and mutual fund managers invest money in the stock markets. Stock investments can generate huge financial benefits by making different kinds of trading techniques like swing trading, intraday trading, futures and options trading and so on. In mutual funds, the fund managers put your investments in different portfolios to reduce the risk of losing money. You can expect a minimum profit of 20 to 40 percent on your investment per year. 

Government allows SIP management in mutual funds and also encourages fund managers to enter into a management scheme  that provides tax savings on your investments. This provision is not made available in stock markets. 

 In mutual funds, the fund manager gives you an option to invest in aggressively managed funds, and also issues you an authority to switch over your investments that suit your purpose. Shifting of funds from one zone to another can help you beat inflation values in the future. Your funds invested in the high risk zones can be managed by allotting it into less risk zones, from one portfolio to another where the chances of unit fund value changes from one portfolio stocks to another stock market.

However, you must select a monthly investment for short term /long term like 2 and above years. Mutual funds should have at least 7 to 10 years continuous flow of SIP every month. 

Stock buyers/sellers must have the  ability to bear the heavy loss that can incur at the time of busy business hours. SIP investments are relatively safer and establishes a comfort zone with the fund manager. 

Understanding Stock Market

Do you dream of making huge money? To begin with, low investment in equity markets ( share markets) should be the most preferred ones. 

Days have gone by, when people were content with the earnings invested in saving and enjoyed the benefits obtained out of it. 

These days, people are fast approaching share markets where huge voluminous buying and selling of shares are done under the supervision of a regulatory body like SEBI in an equity market yard known as Share Bazaar, or Share Markets. 

These equity markets are run by stock markets at the Central & local level known as National Stock Exchange ( NSE), and Bombay Stock Exchange (BSE).

Note: 

The stocks that are listed in the share markets are only allowed to participate in the trading at NSE/BSE.

Important Participants in Stock Markets: 

Four important segments operate to form stock market business, they are stock exchanges, investors/traders, Stock-brokers, Stock exchange board of India, SEBI. 

Investors/Traders:

This community engages in buying and selling of the stocks to make profits in the stock markets, as they show the share price volatility. 

Stock brokers: 

This community is the facilitator in engaging buyers & sellers to conduct trade in the market corridors by charging a nominal fee for the brokerage services. 

Stock Exchanges:

It is a platform where you can find the buyers and sellers requests are processed in an orderly pattern, not missing out the rules of the trading game.

Stock Exchange Board of India (SEBI):

Stock Exchange Board of India is a regulatory authority that governs the rules and regulations to be followed by the trading professionals at stock markets. 

Primary Markets/Secondary Markets: 

The stocks that are raised for trading in the stock exchanges pass through two stages, known to be primary markets, and secondary markets. 

Companies that expand their capital-base on a general invitation to the public to make an investment. The capital is raised by issuing an Initial public offering, IPO that promotes the allotment of shares to different associated communities. They are retailers, institutional buyers, Non-institutional investors, and so on. 

The stock exchange does list these IPOs and later allows the buyers/sellers to trade. Until the listing process is complete in the NSE/BSE, they are known as primary markets. 

The secondary markets are NSE/BSE in India where these listed stocks are traded to make money. No matter, it is highly risky in nature. 

Example of ‘How a trade is executed in stock markets (NSE/BSE), in brief ? 

You want to buy a stock then you place an order ( option buy) through your stock broker at the stock exchange. 

Likewise, a seller shall place a sale order ( option put) through a stock broker at the stock exchange quoting a strike price. 

Depending upon the stock market trends, if the conditions of the buyers/seller match then the stock exchange finalizes the deal, and the stockbroker facilitates the ongoing buying/selling activity.

The stock exchange delivers the stocks to your demat account in T + 1 days, which means, you buy today then by tomorrow closing day, the stocks get delivered. 

Likewise, the stock exchange does credit the money for the sold shares by the following day’s closing of stock market. Here too, it is T+1 days. 

Which are safe Stocks or Mutual Funds?

A return on stock/mutual fund investment is a huge money, compared to a regular savings account, FDs, government institutional/private institutional bonds. Then, which is safer to invest? To know about it, follow the information provided below. 

First, Download the famous apps of Zerodha, Upstox, Moneycontrol, Angelone discount brokerage companies, and they will give you perfect guidance in their blog corner.

These discount brokerage companies do recommend which company stock is safe to trade, or about a specific mutual fund that helps you in saving tax, and produce good returns on investment. 

In brief, their financial experts provide the best solutions and let you understand the safety measures that should be taken in trading stocks or mutual funds. 

Equity market advisers provide you with a right direction, and consulting good discount brokers shall give you a correct answer, which are safe, stocks or mutual funds? 

Note:

All trading experts do emphasize the fact that you must have the ability to take risk, involvement in risk management, tolerance, patience, and discipline goes hand in hand. 

First you must check the merits/demerits of stocks, and mutual funds, and consider the level of risk you should take as per your priorities. You may prioritize health, education, marriage, etc. 

You must apply risk management properly which is proportional to your age index.  

Younger the age, more the risk bearing capacity you would have, therefore, you must begin investments in younger days of life. 

Merits/Demerits of the Stocks and Mutual Funds:

Merits of Stock Markets:

You can benefit from the blue chip stocks which are progressive in nature. As the company’s performance begins to escalate, the shares automatically raise and dividends are issued based on the after tax cut on profits earned. 

You can make profits by selling your acquired stocks at a higher price. 

You can earn more by making an entry/exit position after making proper technical analysis, and studying the company’s credentials. 

Demerits of Stock Markets:

You also have the darker side of stock trading.  It is not just earning huge money, you are bound to get your entire money washed away, so be careful and gather information since stock prices fluctuation are based upon. 

Keep track of the company performance, financial statements, and business expansions, and favourable news on the company, so on. 

You must monitor and regulate your stocks, for that, you must have a thorough knowledge of the stock market trading ecosystem is essential. 

Merits of Mutual Funds:

Fund managers do recommend you in buying/selling of the securities based on your preferences and they are the best financial advisors. 

Banking institutions like HBSC, ICICI, BOB, AXIS, and so on, do help you manage your funds professionally. 

Fund managers do invest your money in a diversified manner that enables you in reducing the financial risk for a stock market collapse.  

You can purchase and sell units, at a price that the stock market holds. 

A liquidity factor allows you to execute the trade in huge volumes.   

Demerits of Mutual Funds:

At the time of units withdrawal you will have to pay huge expenses as compared to FDs, and bonds.  

Fund managers provide you with an option to select the portfolio, but give you no control on the asset allocation. 

In Nutshell:

Both the securities, stocks & mutual funds have specific merits and demerits, and that is dependent on their market operationality. Therefore, you must make a safe play depending upon your financial ability to invest, age, and other responsibilities.