Value Investing – Best Alternative to SIP
Value Investing is a personal finance management technique which basically means buying something at a low rate, keep it yourself till its prices rises and then sell it at high rate. It is a very common technique used my most of the investors and traders now a day. There is nothing profitable in keeping hold a stock for very long period. Stock markets are always dwelling. So no one can predict exactly what will happen next.
So without keeping it for very long span of time, it is wiser to buy in when its prices are low and wait for the right opportunity to sell it when its price shoots up. You have to depend on your instincts and past knowledge and experience so decide that perfect time to sell the stocks. Any stock can either bring you a lot of fortune or may result in huge losses. So with proper understanding of the market, the selection of stocks to buy must be decided properly so that to make it a fruitful investment.
There are basically two categories of investors in the market, one who stay hold of their stocks and remain invested for long period, and the other who buy at nearest low and sell at nearest high price. The second category has great instincts and knowledge of market and put their investment at risk to gain much more than the first category, who play it safe.
Now Systematic Investment Plan (SIP) is another type of investment plan which is investments in mutual funds in a periodical basis. Just like monthly EMI installments, SIP is a term investment plan which allows weekly or monthly or even quarterly investments. In India, it is commonly known as Rupee Cost Averaging. Here lump sum amount of money is not invested altogether.
This is a flexible investment plan where the periodical investment may be decreased or increased according to investor’s will. SIPs can be closed at any point of time if the investor wishes to do so. On investment into a particular mutual fund, the investors are provided an amount of units. These units increase with increase in the sum amount of investment. SIPs are not meant for long run as suppose at the time of investment, the units are obtained in large number when market value is low and fewer units are obtained during high priced market. This keeps the average unit price down, not resulting a fruitful profit as expected.
But SIPs have its own disadvantages. As SIPs are much disciplined natured investment, the returns are also low as compared to Value Investments. As the markets keep rising, the profit percentage will decrease in SIPs. It does not put the investors’ money at risk, but to gain big, one have to take the risks. SIP is not a form of liquid money which can be withdrawn at any point of time. If someone wants to stop it suddenly, he or she cannot do so. Advanced notification is required for sudden abort and withdrawal of invested money. But in case of value investment, there is always a lump sum amount readily available which can be withdrawn at any time. At a time a big sum of money is getting invested. As a result of which, the returns will be also higher if invested wisely, knowing the market risks.
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