“SIP? I Thought It Was a Guarantee!”
A Conversation Begins
“Naidu! After so many years, I can’t believe we randomly
bumped into each other at the café!” Srini laughed as they found a comfortable
corner table.
“Same here!” Naidu smiled. “And since we exchanged numbers,
I’ve been following your WhatsApp status daily. You post a new blog every
single morning. Tax, investments, Wills - you’re unstoppable!”
Srini grinned. “It’s my small way of sharing what I learn.”
“Well, your blog on SIPs got me thinking,” Naidu admitted.
“The one on mutual funds. I never understood SIPs before, and honestly, I
thought SIPs were guaranteed investment plans. That’s why I called you
today. I want to start investing, but I want to understand things properly.”
“That’s exactly why I write,” Srini replied. “Let’s start from
the basics. First, SIP is not an investment by itself.”
Naidu looked puzzled. “Then what is it?”
“SIP is only a method of investing in mutual funds,”
Srini clarified. “Think of it like depositing money regularly into your savings,
but instead of a bank, it goes into a mutual fund of your choice.”
“So SIP is just the way I invest… not the product?” Naidu
repeated slowly, as if correcting years of misunderstanding.
“Right,” Srini nodded. “You choose the fund, equity, debt,
hybrid, international - and then decide how much you want to invest every
month. The SIP just automates it.”
Naidu leaned back. “Okay, but I had another belief, SIP means
no loss. That’s why everyone recommends it!”
“That’s a myth,” Srini replied firmly. “SIP doesn’t protect
you from losses. When markets fall, your fund value also falls. The big
advantage of SIP isn’t no loss, it’s rupee cost averaging.”
“That term sounded fancy in your blog,” Naidu chuckled.
“Explain it in simple words?”
“Very simple,” Srini said. “When markets are low, your SIP
buys more units. When markets are high, it buys fewer. Over time, the average
purchase cost reduces, and that helps
build wealth.”
Naidu nodded slowly. “Makes sense. But another doubt, do SIPs guarantee
returns? I know fixed deposits give sure interest.”
“No guarantee,” Srini answered. “SIPs, especially in equity
funds, are market-linked. Equity SIPs earn better in the long term only if you
stay invested with patience. Debt SIPs feel stable but even they can
fluctuate.”
Naidu scratched his head. “So SIP isn’t safe like FD and it
isn’t guaranteed. Then why do people still trust it so much?”
Srini smiled knowingly. “That is exactly what we’ll discuss
next.”
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