A says, “Instead of starting a mutual fund SIP, can I manually invest each month?” The answer might seem trivial to old investors, but it is worth clarifying for newbies.
Ask any AMC person or mutual fund sales guy this question, and you will get an immediate no. Followed by something like, “An SIP is the best to inculcate discipline and invest regularly”.
There is nothing wrong with a SIP or an automated way to buy units each month. But unless the investor appreciates risk and the true nature of market returns, they can (and do) quickly stop SIPs just as easily as they start them. See The simple secret to successful equity mutual fund investing.
There is nothing wrong with buying units on our own each month, either. Contrary to what the “experts” would say, manual investing has behavioural benefits considering how SIPs are sold.
First, let us get some childish notions out of the way. Manual investing or automated investing, there is no benefit in terms of return or risk. Either way, for blind regular investing, the returns we get depend on the market level at the time of checking. See: How the fate of your mutual fund SIPs is decided by “timing luck”;
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Second, when I say setting up a SIP is unnecessary, investors ask, “Then when should I invest?”. It does not matter – 1st of the month or the 28th. Just invest when you can. See: What is the best date to start a mutual fund SIP? Results from 4000+ 10-Year SIP Returns! Also, is the best day for SIP the last Thursday of the month (Nifty F&O expiry date)?
Those who have a spending problem could invest early. If you think a SIP will solve a spending problem, think again – a SIP can be stopped in a couple of clicks, and it is not the SIP that matters but the amount invested!
Naturally, manual investing will lead to a new set of questions: should I wait for mini-dips and then invest? Again, it does not matter as long as you invest each month. It is a rite of passage, part of an investor’s natural evolution. As long as one does not assume one way of investing is superior to another, anything goes.
So the answer to “Instead of a mutual fund SIP, can I invest on my own each month?” is, yes, you can. There is no difference between the two as long as it is done regularly and consistently. Automated or manual, all you are doing is accumulating mutual fund units.
Investors who appreciate goal-based investing and the need for systematic risk management also tend to appreciate manual investing or, at the very least, recognise that it is the same as a SIP.
I recommend manual investing to those who understand the basics of portfolio construction as it gives them a ‘hands-on’ feel to the problem rather than an ‘invest and forget’ approach the AMC folk would like you to adopt.
The new investors think of the SIP as a contract, like an insurance policy, and often assume the AMC could levy a penalty for missing payments – both are untrue. The first step to effective portfolio management, particularly portfolio rebalancing, is considering mutual fund units.
We buy units in exchange for money and sell them back to the AMC if we need money both at the current NAV. As simple as that. Invest manually or via SIP, withdraw manually or via SWP, and switch from one scheme to another manually or via STP. It is just a simple matter of unit exchange.
AMC folk do not care about your needs or appropriate asset allocation for those needs. They only want ‘all you can spare’ invested in their most expensive schemes automated by SIP.
Hard as it may be for many to accept, manual investing with a system in place is behaviourally beneficial. You can invest whenever you want, as much as you want or stop investing for a few months. Rebalance without worry, etc.
If you cannot invest regularly without automation, then you are likely incapable of managing risk, which is far more crucial and cannot be automated per your personal needs. There is no escape from manual intervention! See: How to systematically reduce risk in your investment portfolio
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