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

Last Updated on

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


Do share if you found this useful

About the Author M Pattabiraman author of freefincal.comM. Pattabiraman(PhD) is the author and owner of  He is an associate professor at the Indian Institute of Technology, Madras since Aug 2006. Pattu” as he is popularly known, 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. Pattu publishes unbiased, promotion-free research, analysis and holistic money management advice. Freefincal serves more than one million readers a year (2.5 million page views) with numbers based analysis on topical issues and has more than a 100 free calculators on different aspects of insurance and investment analysis. He conducts free money management sessions for corporates  and associations(see details below). Previous engagements include World Bank, RBI, BHEL, Asian Paints, TamilNadu Investors Association etc. Contact information: freefincal {at} Gmail {dot} com (sponsored posts or paid collaborations will not be entertained)
Want to conduct a sales-free "basics of money management" session in your office?
I conduct free seminars to employees or societies. Only the very basics and getting-started steps are discussed (no scary math):For example: How to define financial goals, how to save tax with a clear goal in mind; How to use a credit card for maximum benefit; When to buy a house; How to start investing; where to invest; how to invest for and after retirement etc. depending on the audience. If you are interested, you can contact me: freefincal [at] Gmail [dot] com. I can do the talk via conferencing software, so there is no cost for your company. If you want me to travel, you need to cover my airfare (I live in Chennai)

Connect with us on social media

Content Policy

Freefincal has original unbiased, conflict-of-interest-free,  topical reports, reviews, commentary and analysis on all aspects of personal finance like mutual funds, stocks, insurance etc. All guest authors and contributors to the site also do not have any conflict of interest. If you find the content useful, please consider supporting us by (1) sharing our articles and (2) disabling ad-blockers for our site if you are using one. No promotional content We do not accept sponsored posts and link exchange requests from content writers and agencies. This is our privacy policy Our website is non-profit in nature. The revenue from the advertisement will only be used for hosting charges, domain registration charges, specific plugins necessary for traffic growth and analytics services for search engine optimisation.

Do check out my books

You Can Be Rich Too with Goal-Based Investing

You can be rich too with goal based investingMy first book is meant to help you ask the right questions, seek the right answers and since it comes with nine online calculators, you can also create custom solutions for your lifestyle! Get it now.  It is also available in Kindle format.
Gamechanger: Forget Startups, Join Corporate & Still Live the Rich Life You WantGamechanger: Forget Start-ups, Join Corporate and Still Live the Rich Life you wantMy second book is meant for young earners to get their basics right from day one! It will also help you travel to exotic places at low cost! Get it or gift it to a young earner

The ultimate guide to travel by Pranav Surya

Travel-Training-Kit-Cover This is a deep dive analysis into vacation planning, finding cheap flights, budget accommodation, what to do when travelling, how travelling slowly is better financially and psychologically with links to the web pages and hand-holding at every step.  Get the pdf for ₹199 (instant download)

Free Apps for your Android Phone

All calculators from our book, “You can be Rich Too” are now available on Google Play!
Install Financial Freedom App! (Google Play Store)
Install Freefincal Retirement Planner App! (Google Play Store)
Find out if you have enough to say "FU" to your employer (Google Play Store)

Blog Comment Policy

Your thoughts are vital to the health of this blog and are the driving force behind the analysis and calculators that you see here. We welcome criticism and differing opinions. I will do my very best to respond to all comments asap. Please do not include hyperlinks or email ids in the comment body. Such comments will be moderated and I reserve the right to delete the entire comment or remove the links before approving them.


  1. I agree with the article that just SIP is not enough. May be the title should be that.
    But it is still systematic investment. System means some rules instead of random or gut feel. The rule can be as simple as invest on the first of every month or as complicated as invest only on the blood moon day after successfully searching for a werewolf. But it is a system nevertheless.

  2. If SIP doesn’t make sense, how do we invest. What day of the week or month should we invest in and what is the amount to be invested and when. I understand that asset allocation is important from this blog. Why should we invest manually? what is the need and how does it justify for a goal that is after 10 years? I need a bit more answers on this topic so that I can follow!

Leave a Reply

Your email address will not be published. Required fields are marked *