Skip to main content

Investing in Mutual Fund SIPs

Invest In Tax Saving Mutual Funds Online

Call 0 94 8300 8300 (India)

 

Benefit by investing through the systematic investment plan

 


One of the questions investors have been asking of late is whether it's time to discontinue their SIPs. A systematic investment plan, or SIP, has been a popular method of investing in equity funds. Likewise, funds have marketed this idea of disciplined investing successfully. The biggest merit of a SIP is that it allows one to invest regularly without being bogged down by questions about the right time to jump in. However, the past five years of lack lustre performance have led to a spate of SIP cancellations. Perhaps it is time to refresh your knowledge about SIP fundamentals.

 
To begin with, an SIP is not a product or a fund. It is simply an investment process. Instead of basing investment decisions on expectations of how the market will behave, SIPs facilitate a disciplined participation in the market through ups and downs. Since a fixed amount is invested across time, SIPs enable a reduction in average cost. Therefore, the returns from an SIP are not likely to be different from those of the mutual fund in which the investment is made. Many investors believe that if they invest through SIPs, they will earn better returns. That is not true. The returns will depend on how the fund has performed at all times.


Second, the benefit of this option has to be measured across cycles. If you invest via an SIP as the NAVs are moving up, then while computing your return, you will value all your SIPs at the current NAV, which would be higher than your cost of acquisition. Sure enough, your SIPs will look good. However, in a falling market, all your SIPs will be valued at the lower NAV, and hence, will look bad. The returns are measured on the basis of where you stand today, and that will bias your gain or loss. If you persist across cycles, your investment in both the equity and SIPs will look good.


Next, there is no point in comparing lump-sum investments and SIPs. I have seen strenuous research in recent times trying to establish when and under what conditions a SIP can beat lump-sum investment. Actually, they are two completely different ideas, and the latter will typically beat SIPs. When you invest a lump sum, a larger chunk of your money works for a longer period of time. On the other hand, a SIP is a slow model, where you build your wealth with each instalment. Had you invested 10,000 per month in the Sensex since its inception in 1979—406 months in all—you would have about 1.6 crore today. A lump-sum investment of the same amount, 4.06 lakh at that time would be worth over 8 crore today. If you have a lump sum handy, you are better off not trying to go for an SIP unless you think the market is falling and you want to invest at lower levels.


Fourth, SIPs are not about smart market timing; they simply allow you to invest regularly. Assume that you took a home loan and the bank gave you the option of paying only the interest as EMI and repaying the principal amount at maturity, say, after 15 years. Would you rejoice? Not really. You would obviously like to retire the debt using your monthly income. If you have to pay a lump sum on maturity, you might be forced to sell your house to make the payment. Who would want to be in such a situation? So, you choose the regular EMI route and repay the loan when you land a lump sum windfall. This is similar to the SIP route. You invest something every month when you can save, and when you have a lump sum handy, you put it to work too. SIPs enable you to be disciplined in your investing. Without one, you may not even have participated in the down market.


Fifth, when you cancel your SIP, you need to find a way to deploy the money you are saving. Even if you keep it idle in the bank, seeking a safe investment option, you have made a significant asset allocation decision. You have reduced your exposure to equity and increased it to cash. You have to ask yourself if this helps your long-term goals and wealth. Cancelling a SIP in a down market amounts to under weighing equity in a bear market. If you choose to come back when the market moves up again, you are invariably coming in at a higher NAV, and lose the benefit of having invested at the bottom. Your money moves with the market in a SIP, and when you leave
and join at will, you indulge in trying to time the market. When this attempt converts into buying at peaks and selling at the bottom, there is no money to be made.


Next, remember that an SIP in a debt fund is not a great idea, especially when you want to invest a lump sum. A debt fund earns steady and regular interest income. The lesser you participate, the lesser you earn. In equity, the market cycles may modify your benefits in the short term, but with a debt fund, holding a lump sum to invest, and then choosing a SIP is clearly inefficient. If you have the money, put it to work.


The problem, as I see it, is that we seem to have a cultural issue with process and discipline. SIPs are a simple and nice way of investing surplus money without having to do much work on it each time. Instead, we have started asking questions: how to make more out of a SIP, how to beat lump-sum investing, how to beat markets with SIP, how to take the SIP option in a falling/rising market. These are all exercises in futility. A SIP in equity will be subject to market volatility but will do well in the long run, just like any other equity investment. To cancel a SIP in a falling market is to take the timing call that you will not participate in a falling market.

Happy Investing!!

We can help. Call 0 94 8300 8300 (India)

Leave your comment with mail ID and we will answer them

OR

You can write back to us at PrajnaCapital [at] Gmail [dot] Com

---------------------------------------------

Invest in Tax Saving Mutual Funds ( ELSS Mutual Funds ) to upto Rs 1 lakh and Save tax under Section 80C.

Invest Tax Saving Mutual Funds Online

Tax Saving Mutual Funds Online

These links can be used to Purchase Mutual Funds Online that are regular also (Investment, non-tax saving)

Download Tax Saving Mutual Fund Application Forms from all AMCs

Download Tax Saving Mutual Fund Applications

These Application Forms can be used for buying regular mutual funds also

Some of the best Tax Saving Mutual Funds available ( ELSS Mutual Funds )

  1. ICICI Prudential Tax PlanInvest Online
  2. HDFC TaxSaverInvest Online
  3. DSP BlackRock Tax Saver FundInvest Online
  4. Reliance Tax Saver (ELSS) FundInvest Online
  5. Birla Sun Life Tax Relief '96 Invest Online
  6. IDFC Tax Advantage (ELSS) FundInvest Online
  7. SBI Magnum Tax Gain Scheme 1993Invest Online
  8. Sundaram Tax SaverInvest Online
  9. Edelweiss ELSS Invest Online

------------------

Best Performing Mutual Funds

    1. Largecap Funds Invest Online
      1. DSP BlackRock Top 100 Fund
      2. ICICI Prudential Focused Blue Chip Fund
      3. Birla Sun Life Front Line Equity Fund
    2. Large and Midcap Funds Invest Online
      1. ICICI Prudential Dynamic Plan
      2. HDFC Top 200 Fund
      3. UTI Dividend Yield Fund
    1. Mid and SmallCap Funds Invest Online
      1. Reliance Equity Opportunities Fund
      2. DSP BlackRock Small & Midcap Fund
      3. Sundaram Select Midcap
      4. IDFC Premier Equity Fund
    1. Small and MicroCap Funds Invest Online
      1. DSP BlackRock MicroCap Fund
    1. Sector Funds Invest Online
      1. Reliance Banking Fund
      2. Reliance Banking Fund
    1. Tax Saver MutualFundsInvest Online
      1. ICICI Prudential Tax Plan
      2. HDFC Taxsaver
      3. DSP BlackRock Tax Saver Fund
      4. Reliance Tax Saver (ELSS) Fund
    2. Gold Mutual Funds Invest Online
      1. Relaince Gold Savings Fund
      2. ICICI Prudential Regular Gold Savings Fund
      3. HDFC Gold Fund

Popular posts from this blog

Birla SunLife Manufacturing Equity Fund

The Make in India program was launched by Prime Minister Naredra Modi in September 2014 as part of a wider set of nation-building initiatives. It was devised to transform India into a global design and manufacturing hub. The primary motive of the campaign is to encourage multinational as well domestic companies to manufacture their products in India. This would create more job opportunities, bring high-quality standards and attract capital along with technological investment to bring more foreign direct investment (FDI) in the country.   Why India as the next manufacturing destination?   The rising demand in India along with the multinational's desire to diversify their production to include low-cost plants in countries other than China, can help India's manufacturing sector to grow and create millions of jobs. In the words of our Honourable Prime Minister- Mr. Narendra Modi, India offers the 3 'Ds' for business to thrive— democracy,...
Read more

Kisan Vikas Patra - KVP

  Kisan Vikas Patra (KVP) First launched in 1988, the Kisan Vikas Patra (KVP) is one of the premier and popular saving scheme offering from the Indian Postal Department. This product has had a very chequered history- initially successful, deemed a product that could be misused and thus terminated in 2011, followed by a triumphant return to prominence and popular consumption in 2014. The salient features of KVP are as follows- The grand USP- Money invested by the applicant doubles in 100 months (8 years, 4 months). KVPs are available in the following denominations- Rs.1000, Rs.5000, Rs.10,000 and Rs.50,000. The minimum purchase value for the KVP is Rs.1000. There is no maximum limit. KVPs are available at all departmental post offices across India. These certificates can be prematurely encashed after 2 ½ years from the point of issue. KVPs can be transferred from one individual to another and from one post office to another. ----------------------------------------------------- Inve...
Read more

Mutual Fund Review: Reliance Regular Savings Equity

    Despite high churn, Reliance Regular Savings Equity has managed to fetch good returns   In its short history, this one has made its mark. Though its annual and trailing returns are amazing, the fund started off on a lousy note (last two quarters of 2005). It managed to impress in 2006 and was turning out to be pretty average in 2007, till Omprakash Kuckian took over in November 2007 and wasted no time in changing the complexion of the portfolio. Exposure to Construction shot up to 28 per cent with almost 21 per cent cornered by Pratibha Industries and Madhucon Projects . Exposure to Engineering was yanked up (18.50%) while Financial Services lost its prime slot (dropped to 6.69%) and Auto was dumped. That quarter (December 2007), he delivered 54.66 per cent (category average: 25.70%).   When the market collapsed in 2008, thankfully the fund did not plummet abysmally. But even its high cash allocations could not cushion the fall which hovered around the category average. ...
Read more

Total Returns Index brings out real Equity Funds Performers

From February, equity mutual funds have to change their benchmarks to account for dividend payments. Until now, funds used price-based benchmarks alone. TRI or total return indices assume that dividend payouts are reinvested back into the index. What this does is lift the overall index returns, because dividends get compounded. For example, the Sensex TRI index will consider dividend payouts of its constituent companies while the Nifty50 TRI index will consider dividends of its constituents. Using TRI indices as benchmarks comes on the argument that an equity funds earn dividends on the stocks in its portfolio, which they use to buy more stocks. Therefore, using an index that also considers dividend reinvestment would be a more appropriate benchmark. Shrinking outperformance With a stiffer benchmark, it is obvious that the margin by which an equity fund outperforms the benchmark would shrink. Rolling one-year returns from 2013 onwards, the average margin by which largecap funds out...
Read more

How to generate a UAN Online

Best SIP Funds Online   In order to make Employees' Provident Fund (EPF) accounts portable, the Employees' Provident Fund Organisation (EPFO) had launched the facility of Universal Account Number (UAN ) in 2014. Having a UAN is now mandatory if you have an EPF account and are contributing to it. So far, you got this number from your employer and every time you changed jobs, you had to furnish this number to the new employer.  However, in order to make it easier for you to get a UAN , and without your employer's intervention, the EPFO now allows you to go online and generate a UAN on your own. This facility can be used by freshers, or new employees, who are joining the workforce as well as by employees who have older EPF accounts but do not have a UAN as yet. As a new employee, you can simply generate a UAN and provide the number to your employer at the time of joining, when you need to fill up forms for your EPF contribution. As per a circula...
Read more
Related Posts Plugin for WordPress, Blogger...
Invest in Tax Saving Mutual Funds Download Any Applications
Transact Mutual Funds Online Invest Online
Buy Gold Mutual Funds Invest Now