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

IDFC - Long term infrastructure bonds - Tranche 2

IDFC - Long term infrastructure bonds What are infrastructure bonds? In 2010, the government introduced a new section 80CCF under the Income Tax Act, 1961 (" Income Tax Act ") to provide for income tax deductions for subscription to long-term infrastructure bonds and pursuant to that the Central Board of Direct Taxes passed Notification No. 48/2010/F.No.149/84/2010-SO(TPL) dated July 9, 2010. These long term infrastructure bonds offer an additional window of tax deduction of investments up to Rs. 20,000 for the financial year 2010-11. This deduction is over and above the Rs 1 lakh deduction available under sections 80C, 80CCC and 80CCD read with section 80CCE of the Income Tax Act. Infrastructure bonds help in intermediating the retail investor's savings into infrastructure sector directly. Long term infrastructure Bonds by IDFC IDFC issued an earlier tranche of these long term infrastructure bonds on November 12, 2010. This is the second public issue of long-te...

Am you Required to E-file Tax Return?

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   Am I Required to 'E-file' My Return? Yes, under the law you are required to e-file your return if your income for the year is Rs. 500,000 or more. Even if you are not required to e-file your return, it is advisable to do so for the following benefits: i) E-filing is environment friendly. ii) E-filing ensures certain validations before the return is filed. Therefore, e-returns are more accurate than the paper returns. iii) E-returns are processed faster than the paper returns. iv) E-filing can be done from the comfort of home/office and you do not have to stand in queue to e-file. v) E-returns can be accessed anytime from the tax department's e-filing portal. For further information contact Prajna Capit...

Section 80CCD

Top SIP Funds Online   Income tax deduction under section 80CCD Under Income Tax, TaxPayers have the benefit of claiming several deductions. Out of the deduction avenues, Section 80CCD provides t axpayer deductions against investments made in specific sector s. Under Section 80CCD, an assessee is eligible to claim deductions against the contributions made to the National Pension Scheme or Atal Pension Yojana. Contributions made by an employer to National Pension Scheme are also eligible for deductions under the provisions of Section 80 CCD. In this article, we will take a look at the primary features of this section, the terms and conditions for claiming deductions, the eligibility to claim such deductions, and some of the commonly asked questions in this regard. There are two parts of Section 80CCD. Subsection 1 of this section refers to tax deductions for all assesses who are central government or state government employees, or self-employed or employed by any other employers. In...

ULIP Review: ProGrowth Super II

  If you are interested in a death cover that's just big enough, HDFC SL ProGrowth Super II is something worth a try. The beauty is it has something for everybody — you name the risk profile, the category is right up there. But do a SWOT analysis of the basket, and the gloss fades     HDFC SL ProGrowth Super II is a type-II unit-linked insurance plan ( ULIP ). Launched in September 2010, this is a small ticket-size scheme with multiple rider options and adequate death cover. It offers five investment options (funds) — one in each category of large-cap equity, mid-cap equity, balanced, debt and money market fund. COST STRUCTURE: ProGrowth Super II is reasonably priced, with the premium allocation charge lower than most others in the category. However, the scheme's mortality charge is almost 60% that of LIC mortality table for those investing early in life. This charge reduces with age. BENEFITS: Investors can choose a sum assured between 10-40 times the annualised premium...

Merger of Tata Indo-Global Infrastructure Fund with Tata Equity Opportunities Fund

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 Merger of Tata Indo-Global Infrastructure Fund with Tata Equity Opportunities Fund Tata Mutual Fund has decided to merge Tata Indo-Global Infrastructure Fund with Tata Equity Opportunities Fund, with effect from January 16, 2015.   Investors of Tata Indo-Global Infrastructure Fund can redeem/ switch out units from December 13, 2014 to January 12, 2015 without paying any exit load. For further information contact Prajna Capital on 94 8300 8300 by leaving a missed call Leave a missed Call on 94 8300 8300 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 Mutual Funds Online Invest Any Mutual Fund Online Download Mutual Fund Application Forms from all AMCs Download Mutual Any Fund A...
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