Invest Online in Mutual Fund SIP
Money can be made easily in stock markets just by "buying low and selling high". Doesn't it sound simple? But, trust me, executing this is not as simple as it sounds. Forecasting the market was difficult even for Sir Isaac Newton, who had famously said: "I can calculate the motions of the heavenly bodies but not the movements of the stock market" after losing money in 1768 stock market crash.
The chart below explains the difficulty of timing the market. If one would have made an investment at the beginning of 2009, he would have made an annualized return of 18%. On the other hand, if the investment had been made at the beginning of 2008, he would have made just 4% CAGR.
So how should one go about investing? Here, a mutual fund tool called SIP comes in handy for retail investors to eliminate the risk of timing the market.
What is SIP?
Systematic Investment Plan (SIP) is a financial planning tool that helps one to accumulate wealth by making periodic investments over pre-defined intervals of time, regardless of the mutual fund price.
By investing at regular intervals, one can take advantage of market dips since the money buys more units when the price is low and fewer when the price is high, which leads to an averaging of cost per unit over time.
Other merits of SIP
- Easy and disciplined investment approach to achieve financial goals.
- Flexible frequency options to invest, such as fortnightly/ monthly/ half yearly/ yearly.
- Can be started even with a small amount.
Importance of selecting a right product for SIP:
There are multiple SIP products available in the market, but selecting the right one could do wonders to your investment.
Let us understand the importance of choosing the right product for investment with an example. Consider an investment of Rs.1,000 is made every month in Sensex and Birla Sun Life Equity Fund over the last 15 years. Their investment growth is shown in the graph below.
The additional 8 percent XIRR generated by Birla Sun Life Equity Fund as compared to Sensex added Rs.4,97,000 more to the fund's investment value. Thus, choosing a right product for investment plays a major role in wealth accumulation. The longer you stay invested with such product, the better it is.
2 simple rules to harness the power of compounding:
- Invest your money for a longer duration.
- Invest your money in a product which generates higher rate of return.
The chart below compares the investment value of Birla Sun Life Equity Fund and Sensex after 5 year, 10 year and 15 year periods.
Among the two products, "BSL Equity Fund with an investment period of 15 years" has harnessed the power of compounding more because the investment was made for a longer duration and, therefore, the fund has generated more returns.
Parameters to check in a mutual fund for systematic investment:
Investing for a longer duration is subject to individuals' personal needs and financial goals, but getting higher returns depend on the fund's performance which cannot be controlled by investors. Therefore, investors need to do an in depth analysis on a fund before investing.
Selecting a healthy fund for investment is no longer a rocket science. TheFundoo's ratings and tools are forward looking in nature and helps you to pick the right funds.
TheFundoo rates a fund based on 6 parameters, viz. performance, risk, style, diversification, consistency and quality.
For instance, Birla Sun Life Equity Fund which we have used in our example above is a 5 star rated fund because the fund exhibits good performance in most of the key parameters as compared to the other funds in its category.
The table below shows the grading of Birla Sun Life equity fund on different parameters
Let us analyse the key attributes of the fund's overall performance
Birla Sun Life Equity Fund is a consistent performer, with the fund outperforming its benchmark 75% of the months in the last two years. The chart below compares the performance of Birla Sun Life Equity Fund with S&P BSE 200 Fund across different time frames.
The fund also has performed better on Sharpe and Sortino ratios compared to its benchmark. Since the fund has compensated with returns for the risk taken.
Allocating funds to the sectors in the right proportion and picking good stocks are the major skills of a fund manager. These skills help a fund in generating alpha (returns more than index returns). The attribution analysis segregates the alpha of a fund based on the fund manager's decision on sector allocation and stock selection.
From the chart above, we can determine that the fund's alpha can been attributed majorly due to the fund manager's stock selection.
Best Tax Saver Mutual Funds or ELSS Mutual Funds for 2015
1.ICICI Prudential Tax Plan
2.Reliance Tax Saver (ELSS) Fund
4.DSP BlackRock Tax Saver Fund
5.Religare Tax Plan
6.Franklin India TaxShield
7.Canara Robeco Equity Tax Saver
8.IDFC Tax Advantage (ELSS) Fund
9.Axis Tax Saver Fund
10.BNP Paribas Long Term Equity Fund
You can invest Rs 1,50,000 and Save Tax under Section 80C by investing in Mutual Funds
Invest in Tax Saver Mutual Funds Online -
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