Don’t Be Fooled: SIP is NOT systematic investing!

Published: March 25, 2019 at 1:25 pm

Don’t be fooled by those who stand to profit from your investments!  SIP is NOT systematic investing! Starting a mutual fund SIP and continuing it through market ups and down has nothing to do with systematic investing. Buying mutual fund units on the same of day of each month is automation. It has nothing to do with “discipline” like sales guys, investment portals (“direct”/”regular”) and product manufacturers would have us believe. Automation simply means do the job repeatedly using machines or technology. Most people automate the task of buying mutual fund units without having a “system” of purchase and management.

Anything – especially investing – without a system, cannot be called as “systematic investing”.

Just to make things clear:

systematic investing = investing(automated or manual) with a system of active risk+return management.

A SIP is just automated investing. SIP is NOT a system of risk/return management (that blah blah about “averaging” unit price is useless BS – see below)

The problem is most people assume SIP is the system and that is nonsense.

If you are confused at this point, I don’t blame you.  The extent of brainwashing done by the media and financial services is extensive. So let us take this step by step. I have said this multiple times, I hope it won’t hurt to say it again in this context.

Investing with a goal and without

There is nothing wrong with investing without a goal, but if you have one, the management after investing starts becomes so much easier.

Investing starts and ends with risk management.

  • Investing in so-called risk-free instruments like FDs has risks like inflation, taxation and lower rates when you reinvest.
  • Investing in risky assets may lead to loss of capital and loss of time before possible recovery.

So it is common sense that the first step is to invest some portion in risk-free assets (fixed income) and some in risk (equity). This proportion is known as asset allocation.

Asset allocation depends on when you need the money (which is why a goal matters). If you need the money in the next couple of years, having any or more of equity can be dangerous. Even if you need the money decades from now, asset allocation cannot be constant. As time passes, a gradual shift from equity to fixed income is essential. Unless you factor that in now, you will make the mistake of not investing enough.

Once the asset allocation is identified, we choose product categories in fixed income and equity. The categories should have the necessary liquidity (ability to withdraw at will) and reasonable taxation. Then from within each chosen category, products are selected.

The products from the same asset class, especially risky ones should be diversified. That is, choosing a large-cap fund + mid-cap fund with little overlap between them or choose a single multi-cap fund. Check out these Minimalist Portfolio Ideas.

SIP is NOT systematic investing

Then and only then comes the investing. Most people are in such a hurry to “start investing via SIPs”. Then they are in a hurry to get returns. Being impatient when patience is necessary and being patient when impatience is required is perhaps the greatest human folly.

The point of this post is, if you have started investing via SIPs without any thought about asset allocation, diversification and how these things need to change with time, you are NOT investing systematically for the simple reason that you do not have a system. Sure, people from the financial services will massage your ego and tell you that you are on the right path. The fact is, whether you invest with a system or not, you are on the right path for them.

There is more to it. After you start investing, comes the risk management. Since returns from equity can fluctuate up and down, you need to watch out for deviations from your asset allocation. Reset it to the desired level, once a year initially and more often as the time for the goal approaches (again why it is important).

Then you need to understand how to review the performance of volatile instruments. Those bloggers who wrote “top 10 best mutual funds for 2018” will not tell you how to review a mutual fund portfolio. Because they are busy reaping the rewards of stupid folk who take such articles seriously.

If you can do all this at least after starting SIPs, you are investing systematically. Merely starting a SIP is NOT systematic investing. The people most likely to disagree with this article are those who stand to profit from SIPs. That is a conflict of interest for you. Those who make the loudest noise are often the infected ones (with conflict of interest).

Timing the market IS systematic investing!

Timing the market or in other words changing the asset allocation based on market conditions is most definitely systematic investing. Again provided there is a system present. Those who blindly do it assuming returns will improve have no idea about the purpose of timing the market – manage risk.

Those who understand the basics of risk management will know that it is more important to protect the amount invested from market volatility than to “time” the next investment.

SIP is NOT systematic investing because it does not reduce risk!

I have shown this multiple times that returns can be anything with a SIP as the risk is not managed.

Do not expect returns from mutual fund SIPs! Do this instead!

Beware of Misinformation: Mutual Fund SIPs Do Not Reduce Risk!

Dollar Cost Averaging aka SIP analysis of S&P 500 and BSE Sensex

Don’t get too comfortable with equity: This is how a real market crash “feels” like


Create a start-to-finish financial plan

Use the freefincal robo advisory template to handle all the above-mentioned aspects.

Resources for managing risk and reviewing your portfolio

Here is a list of posts I have written on this topic

How to Review Your Mutual Fund SIPs

Review Your Financial Freedom Portfolio in Seven Easy Steps

How to review a mutual fund portfolio

How to systematically reduce the risk associated with a SIP


systematic investing = investing(automated or manual) with a system of active risk+return management.

SIP is just the investing bit. Either you develop a system of your own or consult a SEBI registered investment advisor who does not get any commissions from your investment and works only for you: Fee-only India: launch of a movement to serve investors and advisors


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About the Author Pattabiraman editor freefincalM. Pattabiraman(PhD) is the founder, managing editor and primary author of freefincal. He is an associate professor at the Indian Institute of Technology, Madras. since Aug 2006. Connect with him via Twitter or Linkedin Pattabiraman has co-authored two print-books, You can be rich too with goal-based investing (CNBC TV18) and Gamechanger and seven other free e-books on various topics of money management. He is a patron and co-founder of “Fee-only India” an organisation to promote unbiased, commission-free investment advice. He conducts free money management sessions for corporates and associations on the basis of money management. Previous engagements include World Bank, RBI, BHEL, Asian Paints, Cognizant, Madras Atomic Power Station, Honeywell, Tamil Nadu Investors Association, IIST Alumni Association. For speaking engagements write to pattu [at] freefincal [dot] com
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