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SIP the new ULIP

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You get up in the morning and reading your newspaper, in some time on the way to the office and stuck in traffic and surfing random websites in office, back to home and watching TV with the family. All of the stated activity has one thing in common and that is SIP. Ads in newspapers, a billboard on the way to the office, banners on the website and TV commercial in between the soap you are watching. It’s one of the highly advertised Investment mode of a financial product (Mutual fund). Similarly, there used to be ads of ULIP in its era. None of them is a bad product, but it might be one if you go blind. You have people talking in the office, relative and even grocery shop, who’ll give you random advice on which mutual fund to purchase and start a SIP. These all are the tactics of behavioural finance by driving the numbers in front of your eyes and influence you to take an early call.

We are easily impressed with the past, hoping it will repeat in future. Someone of us even takes calls to invest the money which we need in the short term and feel stuck later on. A mutual fund is a very good tool to use the diversification to your advantage, but it might be the worst product if you do it without any planning. Furthermore, there are a lot of asset classes in which mutual fund invests the AUM, do feel the necessity learn more about it. Better to take an informed call than an idiotic call.

Few people recommending the same to their maid and milk vendor, without even knowing what the reaction will they get when they will see a downfall in their invested amount. People are far more reactive and risk averse when you bring losses in the picture, and for most of us, a big loss is more pain than a joy of a big gain.

First of all, there is a need to understand risk appetite of yours and the person you are advising risky assets. Consequently, there should be enough knowledge of the playfield where you are entering to play. Choosing the bat, which suits your weight and height is necessary and you are comfortable playing with it, don’t forget to add padding and helmet etc. in your kit. Therefore, you are ready to play the game.

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