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Individual investors have often found themselves standing at crossroads when it comes to investing in equity markets; more so, when the markets have been exhibiting an extremely volatile trend. Increasing awareness and growing participation of individual investors in mutual funds have brought into limelight the concept of Systematic Investment Plan (SIP) from some time. Being a disciplined approach of investment, SIP has encouraged individual investors to invest periodically and therefore smoothen out the ups and downs of the market.

Q
I have invested in post office schemes and bank deposits, as I am comfortable with these avenues. My relationship manager is asking me to invest in SIP of equity funds. Is SIP suitable for me?
A

It is true that equity funds are more risky than post office schemes and bank deposits. However, one need to appreciate the fact that SIP reduces the volatility associated with equities as one does not enter into the market in one go. By avoiding equities, you can avoid the risk of volatility at the cost of lower rate of wealth creation. Consider the growth of value of Rs.5,000 per month over a period of 5 years in the table below. The wealth accumulated under SIP in Nifty is almost double than that under other avenues. If a 5-year period results in so much of difference imagine how much difference it can make to the growth of your savings over a period of say 10 or 20 years.

Investment avenue Rate of return Investment value of Rs.5000 per month after 5 years
PPF 8.00% Rs. 3,67,069.89
Post Office Recurring Deposit 7.50% (compounded quarterly) Rs. 3,64,448.61
SBI Recurring Deposit 8.00%* Rs. 3,67,069.89
SIP in HDFC Balanced Fund 16.66%** Rs. 4,49,258.07

*Interest rate for recurring deposit in SBI has been considered if investment had been made five years ago.

** XIRR if SIP is done on 5th of every month.

You should also consider the point that if one stays invested with equities for long-term; the risk of losing money reduces. There is no doubt that Indian economy is expected to outperform all its peers in the next few years and as a result Indian Markets are also expected to have a great run. This means that one should expose himself to Indian equities through SIP.

Q
Should aggressive equity funds like sector or thematic funds be considered for SIP or investment in relatively conservative equity funds like diversified or largecap funds would be better?
A

For SIP investment, both types of funds i.e. more aggressive funds (like thematic/midcap) and less aggressive funds (like diversified/largecap) could be considered. However, the key factor here is investment duration. If your investment duration is say, 3 years, then a less aggressive fund would be more suitable. However, if the investment horizon is 5 years or so, funds which are high on aggression could be preferred. Hence higher the aggression of the fund; more should be the investment duration.

Q
There are also talks to daily SIP being more favourable than monthly SIP. As per your opinion, which method is more beneficial?
A

Daily SIP plan is being offered in the market by multiple AMCs, which allows an investor to invest a pre-fixed amount (as indicated by the investor) on a daily basis in equity funds. There are also daily STPs which allows an investor to invest a lump sum amount in a liquid scheme and later into an equity scheme. On daily basis, amount specified by the investor is transferred to equity scheme of the same AMC. Daily STP helps in capturing daily movements of the market, unlike regular SIPs where investments are made on a monthly basis. However, past data suggests that the difference in returns between these two modes is quite negligible in most cases. Hence, it cannot be said that daily SIP has beat monthly SIP. You can choose the method which suits you the most.

Q
Recommended schemes which could be considered for SIP
A

Conservative

Scheme Name Category NAV Returns(%)
2 Years 3 Years 5 Years
Birla SL Equity Fund(G) Large-cap 552.00 15.98 32.25 18.73
L&T Equity Fund-Reg(G) Large-cap 65.41 12.30 23.72 14.55
SBI BlueChip Fund-Reg(G) Large-cap 31.656 17.02 27.42 19.14
Franklin India Prima Plus Fund(G) Multi-cap 480.86 17.37 28.19 18.29
ICICI Pru Balanced Advantage Fund(G) Balanced 28.47 11.79 19.75 15.36
SBI Magnum MidCap Fund-Reg(G) Mid-cap 68.35 25.99 41.98 25.30

Moderate

Scheme Name Category NAV Returns(%)
2 Years 3 Years 5 Years
Birla SL Frontline Equity Fund(G) Large-cap 179.62 13.49 24.95 17.35
Franklin India Bluechip Fund(G) Large-cap 385.20 12.88 21.80 14.07
L&T India Value Fund-Reg(G) Multi-cap 27.30 20.13 35.64 22.16
Reliance Equity Opportunities Fund(G) Multi-cap 74.18 10.52 25.69 16.67
Mirae Asset Emerging BlueChip-Reg(G) Mid-cap 35.85 26.54 43.45 26.93
UTI Mid Cap Fund(G) Mid-cap 87.95 20.97 43.10 23.50

Aggressive

Scheme Name Category NAV Returns(%)
2 Years 3 Years 5 Years
Reliance Growth Fund(G) Large-cap 868.13 15.95 29.07 16.19
Birla SL Pure Value Fund(G) Multi-cap 44.70 18.28 42.80 22.51
Franklin India High Growth Cos Fund(G) Multi-cap 31.17 17.54 32.27 21.94
Birla SL Small & Midcap Fund(G) Mid-cap 29.58 25.67 38.39 20.04
Canara Rob Emerg Eq Fund-Reg(G) Mid-cap 66.87 23.65 43.90 24.86
SBI Magnum MidCap Fund-Reg(G) Mid-cap 68.36 26.00 41.99 25.30


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