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

What are the factors affect the changes in Interest Rate of Fixed Deposits?

  What are the factors affect the changes in rate of Fixed Deposits? Fixed Deposits are now considered to be a very old fashioned method of saving, but still attract many investors since they have guaranteed returns at the end of the tenure of the investment at a decent interest rate. There are various factors that affect the rates of interest for a Fixed Deposit. Policies of the Reserve Bank of India   - The several norms and restrictions posed by the Reserve Bank of India , in order to gain optimum control over credit and inflow and outflow of fund throughout the country. The repo rate changes, cash reserve ration tends to change and these changes affect the banking products like Fixed Deposits, loans etc. Recession   - When unemployment in a country crosses the benchmark set Recession hits, and slowly the country faces an economic slow movement, affecting the purchasing power of the people in the country, forcing the Reserve Bank of India to release more funds in the financial marke...
Read more

Understanding Your Cibil Credit Information Report

   WE ARE all familiar with the anxiety and uncertainty that we feel when applying for a loan. After all, it's the lender who decides whether we can own our dream home, our first car, or whether our children can pursue higher education. In a nutshell, a better life depends on the lender's decisions.    While other factors do play a part in the lender's decision, the Cibil Credit Information Report ( CIR ) plays a crucial role in a lender's decision to approve a loan application.    Previously, lenders would treat all loan seekers equally. Each applicant, if approved by the lender's internal credit policy, would be charged at the same interest rate for a particular loan size and purpose. The lenders would charge a higher interest rate to all the borrowers, in order to compensate for the possible default of a small portion of the loan disbursed. In other words, it's like a professor (the lender) punishing an entire class (borrowers) for the mischief played b...
Read more

Capital Protection Oriented Funds

Download Tax Saving Mutual Fund Application Forms Invest In Tax Saving Mutual Funds Online Buy Gold Mutual Funds Leave a missed Call on 94 8300 8300   Capital Protection Oriented Funds   Erosion of capital is one of the key concerns for investors wanting to invest in equity mutual funds. To address this concern, asset management companies have launched Capital Protection Oriented Funds (CPOFs). What are CPOFs? CPOFs are generally three to five-year, closed-ended funds where 70-80% of the portfolio is invested in fixed income securities, which mature on or before the scheme's tenure. The investment in fixed income securities grows to 100% at the end of the tenure, providing the investor with capital protection. The remaining portion (20-30%) is used to take exposure to equity, which provides the upside. Exposure to equities is either by directly buying equity stocks (plain vanilla CPOFs) or by b...
Read more

Good Loan

Why Is It A Good Loan?: Loans against gold are cheaper and better than personal loans as the former are available at lower interest rates. In contrast, the interest rates on personal loans are not standardised and can vary from bank to bank. Also, a personal loan depends on a host of factors including, the borrower's salary, profession and the purpose for which the loan is being taken.      For instance, the interest rate on a personal loan of 5 lakh falls in a wide range of 15-30%. But loans against gold are available for as low as 11%. Secured borrowing such as a loan against gold, investments or property is cheaper because it is backed by some assets, which command a good value at any point of time. If the borrower defaults on the loan, the banks can liquidate the assets to settle the loan account.    Being a secured loan, the risk of default and credit losses is significantly lower in this loan compared to other forms of loan for personal use. Given the lower risk, gold loa...
Read more

Mutual Fund Review: ING Dividend Yield

  ING Dividend Yield's small assets enable the fund manager to churn in impressive returns… Strategy The aim of the fund is to invest in stocks which offer a high dividend yield. This fund deploys a value based strategy which aims to gain from investing in fundamentally strong and free cash flow generating businesses. The scheme focuses not only on growth but also on the cash generated by the business, which mostly leads to stable returns even in volatile markets. This fund has a low volatility because of its investment in high yielding stocks. The scheme tries to include stocks that yield dividend above the dividend yield of the Nifty and stocks with liquidity, which throws up a universe of 150 stocks.   Our View Launched in October 2005, this fund invests at least 65 per cent of its assets in high dividend yield stocks. The fund has consistently maintained a mix of stocks across varying market capitalisation, with a higher tilt to mid caps compared to small caps. Howev...
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