Skip to main content

Mutual Fund SIP better investment than lump sum investment in mutual fund

Invest In Tax Saving Mutual Funds Online

Call 0 94 8300 8300 (India)

It is a way for regular investments, overcomes greed-and-fear cycles

WHETHER systematic investment plan (SIP), where investors allocate certain fixed amount into stocks/bonds at regular periods, or lump sum investment, would generate better returns has always been a point for debate among market participants.

Analysts at MorningStar India, a mutual fund tracker, tried to look at how things would pan out on the ground in India after a research from US-based mutual fund giant Vanguard said lump sum investment generated better returns for two-thirds of the time after portfolios were allocated going back to 1926 in the US, 1976 in the UK and 1984 in Australia.

Vanguard tested a variety of allocations ranging from all-stock to 60:40stock:bond to all-bond, and looked up the result for rolling 10-year periods (that is, from January 1926 to December 1935, followed by January 1927 to December 1936, and so on).

Their conclusion was lump sum investment portfolios outperformed dollar cost averaging (aka SIP) portfolios 66 per cent of the time for 100 per cent equity, 67 per cent for 60:40 stock: bond and 65 per cent for 100 per cent bond in the US.

Similar results were seen across the UK and Australia data. However, things may not work similarly in India.

MorningStar India said given an average investor putting any amount to invest via lump sum, and more likely to put it to work at the wrong time, that is, around the peak of a euphoric market when valuations are rich and the investment is more likely to lose money rather than at the trough of a bear market when recent returns have been poor but compellingly cheap, will result in greater future gains.

That small investors poured huge sums of money into stocks/stock mutual funds at the height of the 2007 bull-run, compared with outflows after the 2008 crash bear testimony to this point.

A similar back-testing exercise was done by Quantum Mutual Fund in India on SIP, value averaging investment plan (VIP) and lump sum investment. Jimmy Patel, CEO of Quantum MF, said both SIP and VIP returned matched in India, and both are ahead of lump sum investment. In the case of three year data, though value SIP may beat plain vanilla SIP, but after deducting for exit loads, both the SIPs generated better returns.

A VIP is an investment strategy that works like an SIP – you invest on a pre-determined date, into a fixed mutual fund scheme, thus achieving the purpose of disciplined investing and following the teachings of finance gurus when they say `buy low'.

But, while in an SIP , the amount is fixed and units may change, in a VIP , you have a target value of your portfolio, which increases by say Rs x,000 per month, and you invest the difference between the current value of your portfolio and the targeted portfolio investment value. By buying more when markets go down, you are also benefiting from the concept of rupee cost averaging.


Investing regularly also inculcates financial discipline, and you don't have to worry about too much paperwork.

Sameer Kamdhar, a mutual fund analyst and former CEO of ASK Investment Managers, said: "SIP gives you a disciplined investment approach. Buy low and sell high approach has never worked in Indian market for small investors. For salaried people too, SIP is much better suited."

Kamdhar also highlight ed the way investors reacted in India during past bull phases (they entered at near-peaks) and bear phases (when they exited at rock bottom levels) to show that SIP was a better investment strategy in India.

Patel of Quantum MF, added: "SIP investors tend to scare less easily than lump sum investors when the markets fall, as they get the chance to buy low, and later when they want, sell high".

In the study by Quantum, it was found that three to five years after completing a 12month VIP, the returns under the VIP method and SIP method are almost same. The convergence of returns happens post the last payment of instalment of SIP/VIP over a period of time, wherein, the true benefits of equity investments gets captured. Initially, at different levels, SIP and VIP showed performing better than the other, but ultimately in the long run, both give similar returns.

"….SIP scores over VIP in ensuring discipline of investments and over a long period of time gives return similar to that of VIP while doing away with risks of forced redemption or requirement of additional surplus cash for investments. SIP captures the potential of extracting a better valuation when investing in falling markets, while it also averages out risk of investing in a rising market," the study said.

The idea of an SIP is simple and forceful. It, by default, not only paves the way for regular investments, but also eliminates the behavioural greed-and-fear cycle, which could otherwise make the investor over or underinvest during up or down markets

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

Rs 14,000 Crore worth of tax free bonds coming soon from NHAI , PFC

  NHAI, PFC file prospectuses, coupon rate not yet decided MORE debt investment options have opened up for investors with AAA rated tax-free bonds worth over Rs 14,000 crore lined up. The National Highway Authority of India ( NHAI ) and Power Finance Corporation ( PFC ) are offering Rs 10,000 crore and Rs 4,033.13 crore worth of tax-free bonds, respectively, as per prospectuses filed with the Securities and Exchange Board of India (Sebi). Of a Rs 5,000 crore issue by PFC, Rs 966.87 crore has already been raised through private placement on September 28 and November 1. Tax-free bonds give investors tax-free return on any amount invested. In another kind of bonds, the long-term infrastructure bonds, investments up to Rs 20,000 are tax exempt, that is this cap amount can be deducted from the taxable income. Accordingly, the NHAI prospectus has clarified that only the amount of interest from -and not the actual investment on -its new bonds will be tax-free. "NHAI's publ...
Read more

Change in Fund Manager for some of HSBC Mutual Fund Schemes

Buy Gold Mutual Funds Invest Mutual Funds Online Download Mutual Fund Application Forms Call 0 94 8300 8300 (India) However, this facility is only available to Unit holders who have been assigned a folio number by the AMC.   HSBC Mutual Fund has announced that the below mentioned schemes shall be managed by the new fund managers as stated in the table. The effective date will be July 02, 2012.   Amaresh Mishra 's will be Vice President and Assistant Fund Manager. Having done a Post graduate diploma in Business Management and Bachelor of Chemical Engineering, he has over seven years of experience in Equities and Sales.   Mr. Piyush Harlalka's designation shall be Vice President- Fixed Income. Qualified as a C.A., C.S. and holding M.B.A.( Finance degree), he has over six years of experience in Fund management and ...
Read more

How EEE and EET Tax affect Retirement Investments

  An important factor while choosing a financial product is its taxation , and for retirement savings, this is even more important as the sums involved are usually life-long savings. Here's a look at the current tax treatment of three major long-term retirement planning products, which are - Employees' Provident Fund (EPF), Public Provident Fund (PPF) and National Pension System (NPS). EPF The tax treatment is EEE, which means your money is exempt from taxes at the time of investment, accumulation and withdrawal. At the time of investment, the tax deduction is under the limit of section 80C of the Income-tax Act , which is currently Rs 1.5 lakh. Partial withdrawals are also tax-free if made after 5 years of continuous service. If withdrawals are made before 5 years of service, 10% tax will be deducted at source. Exceptions have also been provided for transfer of amount and conditions wherein the subscriber is unemployed for more than 2 months or the loss of job was beyond th...
Read more

Personal Finance: You can insure your wedding

But luck may not always be on your side. With the frequency of such attacks, as also other risks and unforeseen accidents growing, a wedding insurance is something you may want to look at if a marriage is being planned in the family. Event insurance plans like this is still in its nascent stages due to low awareness. And given the sacred nature of the ritual, nobody wants to discuss or think negative. But as wedding spends and risks grow, it makes sense to cover the potential monetary loss. The policy in those countries even covers the loss of the wedding ring, the wedding gown not reaching on time and even the expenses/loss due to late or non-appearance of the photographer which may mean staging the event once again for the photograph. In India, most insurance companies — including ICICI Lombard General Insurance, Oriental Insurance, Bajaj Allianz and National Insurance — offer wedding insurance. The policy is tailor made to individual requirements and needs. The sum insur...
Read more

DSP BlackRock MidCap Fund

Best SIP Funds Online   HOW HAS DSP BlackRock Small & Mid Cap Fund PERFORMED? With a 10-year return of 14.61%, the fund has outperformed both the category average (12.34%) and the benchmark (10%) by a good margin. Should you invest in DSP BlackRock Small & Mid Cap Fund? This fund invests predominantly in mid-cap stocks but takes a sizeable exposure in small-caps as well. The focus is on nascent companies with high growth potential. The fund manager places emphasis on quality and avoids inferior businesses even if these look tempting from a valuation perspective. Over the past year, the fund portfolio has grown, having added to some of the underperforming sectors like chemicals and healthcare. Its portfolio churn has come down significantly. The heavily diversified portfolio is run completely agnostic of its benchmark index— most bets are from outside the index—which can at times lead to bouts of underperformance as seen in the recent years....
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