We’ll list down few best SIP plans to consider investing in new year 2018. But before that lets get some concepts clear about the SIP itself.
Increased awareness about the SIP will help a person to invest more wisely in mutual funds via SIP route.
In order to make schemes attractive and affordable for small investors, mutual fund companies offers SIP Plans.
What makes SIP plans best is the convenience with which one can buy units of mutual funds.
In the past decade, SIP plans have really become popular among people in India. Not only beginners, even experienced investors prefer to invest in equity through SIP route.
SIP plans are super hit with small investors. What makes SIP so popular? They are affordable and convenient for the investors pocket.
Systematic investment plans (SIPs) allows investors to invest gradually in mutual funds. Gradual investment, coupled with the benefit of compounding makes SIP one of the best long term wealth building option.
What we mean by gradual investment?
SIP is being referred as gradual because, big amounts are not used to buy mutual fund units at a time. Instead, smaller amounts are gradually invested month after month to accumulate units at a slow pace.
Though the accumulation process is slow, but it is a very sure way to gather units, without fail, every passing month.
What makes SIP Plans the BEST?
SIP is a great alternative to BIG lump-sum investment.
Given a choice, every one will like to invest money and make profits. But due to the two big bottle necks people refrain themselves from investing. The bottle necks are: (a) Lack of funds and (b) Lack of investing know-how.
Systematic Investment Plans (SIPs) offered by mutual funds helps its investors to completely remove both the bottle-necks excellently.
SIP in mutual funds, allow small investors to invest smaller amounts under supervision of expert fund managers.
SIP can start from as low as Rs 500/month to any amount as per investors convenience.
This makes it extremely convenient for anyone to participate in the investment process.
Moreover, the probability of losing money in SIP is also smaller. How? The invested money gets sprayed and is also well diversified.
We will see how SIP helps in spreading and diversification of funds.
At the moment, lets digest this idea first that, investing small-small amounts systematically each month, under expert supervision, makes SIP a great investment vehicle.
The only care one should take after buying units through SIP is, to stay invested for long term.
Why not invest directly in stocks?
Investing in equity through SIP is ideal for beginners. Why?
Direct investing in stocks has its own advantages and disadvantages. But for small investor, who lacks expertise, disadvantages are more dominant.
Direct equity investing demands time and knowledge from investors.
Investing indirectly in stocks through SIP route is best for people who do not have time to research individual stocks and then invest in it.
For such people, indirect investing in equity, through good SIP plans, is most likely to make more money than direct stock investing.
Systematic Investment Plan Calculator
|Monthly Contribution(In INR)|
|Interest Per Annum (%)|
|Time (in years)|
|SIP Appreciated Amount(In INR)|
Compounding of money by SIP Plans
Systematic investment plan is an excellent way to build large corpus gradually.
In order to understand the advantage of SIP, lets take simple examples.
Consider that one can spare just Rs 1/month for SIP. We can use a magic table to evaluate the level of returns.
|Rs 1/ Month||3Yrs||6Yrs||9Yrs||12Yrs||15Yrs|
Les see how to read the above table through the below examples:
Yield @8% per annum, Investment Horizon: 3 years
Investing Rs 1/month, @8% p.a., for next 3 years, will build a corpus of Rs.40 (use the above SIP calculator).
Rs.1/month becoming Rs.40.
Using the same multiplying factor, SIP of Rs.500/month (1 x 500) will become Rs.20,000 (40 x 500).
Yield @10% per annum, Investment Horizon: 6 years
Investing Rs 1/month, @10% p.a., for next 6 years, will build a corpus of Rs.99.
Rs.1/month becoming Rs.99.
Using the same multiplying factor, SIP of Rs.800/month (1 x 800) will become Rs.79,200 (99 x 800).
Yield @12% per annum, Investment Horizon: 9 years
Investing Rs 1/month, @12% p.a., for next 9 years, will build a corpus of Rs.194.
Rs.1/month becoming Rs.194.
Using the same multiplying factor, SIP of Rs.1,200/month (1 x 1200) will become Rs.2,32,800 (194 x 1200).
Yield @14% per annum, Investment Horizon: 15 years
Investing Rs 1/month, @14% p.a., for next 15 years, will build a corpus of Rs.612.
Rs.1/month becoming Rs.612.
Using the same multiplying factor, SIP of Rs.1,500/month (1 x 1500) will become Rs.9,18,000 (612 x 1500).
Example of gradual ‘Units’ accumulation using SIP
Les see how units are accumulated using SIP by means of an example:
# First Month – Aug
- SIP amount: Rs.2000.
- NAV: 51.8470
- Units purchased: 38.575 (2000/51.847)
# Second Month – Sep
- SIP amount: Rs.2000.
- NAV: 55.6328
- Units purchased: 35.95 (2000/55.6328)
# Third Month – Oct
- SIP amount: Rs.2000.
- NAV: 55.7839
- Units purchased: 35.853 (2000/55.7839)
# Twelfth Month – July
- SIP amount: Rs.2000.
- NAV: 73.9607
- Units purchased: 27.041 (2000/73.9607)
This way, each month SIP bought specific number of mutual fund units for its investor. By the end of the 12th month, total number of all units purchased in last 1 years is 397.989, having a market value of Rs.29,436.
Invested value was Rs.24,000. Appreciated value is Rs.29,436. The gain happened anyhow irrespective of the fact that in between months NAV of mutual was very volatile.
There is a very important point to note here:
The quantity of units purchased was dependent of the NAV.
When NAV was higher, less number of units was purchased. See between starting months Aug (NAV: 51.847, Unit: 38.575 nos) and Sep (NAV: 55.6328, Unit: 35.95 nos).
When NAV was lower, more number of units was purchased. See between the months Dec (NAV: 60.0082, Unit: 32.29 nos) and Jan (NAV: 58.1113, Unit: 34.417 nos).
This is what can be remembered as advantages of spreading the investment fund in span of 12 months.
How this is an advantage?
See, when NAV is high (expensive), SIP amount of Rs.2000 is buying less units. This is also logical. When price of Onion or Tomatoes rise, we buy less of them, right?
Similarly when NAV is low (cheap), SIP amount of Rs.2000 is buying more units.
Lump Sum Investing Vs SIP
Condition 1 (NAV is only rising):
NAV of mutual fund is bullish. During the course of time (say 4 months), the NAV of mutual fund rose from Rs.10 to Rs.28.
In this case lets see, which investing style is better, lump-sum or SIP?
Lump Sum: Investment amount Rs.8,000. Number of units purchased 800 (8000/10). Market value of the held units at the end of 4th month is: Rs.28 x 800 = Rs.22,400.
SIP: Investment amount Rs.2,000/mon (for 4 months). Number of units purchased 452 [200 (2000/10), 100 (2000/20), 80 (2000/25), 72.428 (2000/28)]. Market value of the held units at the end of 4th month is: Rs.28 x 452 = Rs.12,656.
At the end of 4th month, market value of units are as follows:
- Lump sum: Rs.22,400
- SIP: Rs.12,656
In this case, when NAV is only showing a rising trend, lump sum investing will be more profitable.
Condition 2 (NAV first falls and then recovers):
During the course of time (say 4 months), the NAV of mutual fund fell from Rs.23 to Rs.12, and then rose to Rs.30.
In this case lets see, which investing style is better, lump-sum or SIP?
Lump Sum: Investment amount Rs.8,000. Number of units purchased 347.826 (8000/23). Market value of the held units at the end of 4th month is: Rs.30 x 347.826 = Rs.10,434.
SIP: Investment amount Rs.2,000/mon (for 4 months). Number of units purchased 420.29 [86.96 (2000/23), 166.67 (2000/12), 100 (2000/20), 66.667 (2000/30)]. Market value of the held units at the end of 4th month is: Rs.30 x 420.29 = Rs.12,608.
At the end of 4th month, market value of units are as follows:
- Lump sum: Rs.10,434.
- SIP: Rs.12,608.
In this case, when NAV is volatile (going up and down), SIP plans will be more profitable.
Important to note here is that, in real life scenario Condition 2 is prevalent. Condition 1 is a rare phenomenon.
Hence, we can safely conclude that, SIP plans will prove better in normal times.
Recurring Deposit (RD) Vs SIP
Some thoughtful person questioned, why invest in SIP when a much safer investment option like Bank RD is around?
The answer is linked with potential investment returns.
Recurring Deposit is more of a saving option (debt based plans). Long term returns of a bank RD will be very low compared to SIP.
SIP allows small investors to invest in equity.
[P.Note: Though SIP in debt linked mutual funds are also available. But in this example, we are pointing mainly at SIP in equity linked options]
Long term return of equity is better than debt linked plans.
Though returns of equity (SIP) is volatile in short term, but in long term, profits are almost assured. SIP can give very high returns.
On one side we have RD whose returns are assured, but its ROI is low. One other hand we have equity SIP whose returns are volatile, but its ROI is high.
So an an investor, what we must choose?
Depending on ones available time horizon, suitable investment option can be selected.
When time horizon is longer than 4/5 years, SIP plans will be better. When time horizon is shorter than 4/5 years, bank RD will be better.
SIP in equity fund will buy one ‘units’. These purchased units must be held for a period not less than 4-5 years.
In short term, NAV of SIP will be volatile. Hence chances of loss in while redeeming the units will be very high.
But when units are held for 4-5 years, growth will be assured.
Be careful about the returns from SIP…
This is a very common question. What will be my return in SIP?
A common answer will be, go and check in moneycontrol.
But in the context of SIP plans, it is essential to elaborate a little bit more about the potential returns on can earn in a SIP Plan.
This has confused me for all my initial years, hence I thought it to be prudent to put-up a good explanation here for my readers.
What is the confusion?
I just went to moneycontrol and used their SIP Return Calculator. I took example of a HDFC Balanced Fund (G), to see what returns I would have earned had I invested in this mutual fund (through SIP), from 01-Jan-2013.
See the result.
Investment return highlighted here is 18.78% per annum. This value is very misleading for a beginner. I will tell you how.
The example that I have considered here is like this:
- SIP amount = Rs.1000/month (1000×60 = Rs.60,000)
- Time horizon = 5 years (5×12 = 60 investments)
- Units accumulated in 5 years = 642.65 nos.
- Market Value as on 4-Dec’17 = Rs.96,488.13 (@NAV: 146.964)
What does these value tell us?
As an investor, we will look only at the hard facts, which is, how much the money grew in 5 years?
Money grew from Rs.60,000 to Rs.96,488 in 5 years.
It means, Rs.60,000 grew at rate of 9.97% to become Rs.96,488 in 5 years. This is the way my excel sheet calculated the returns for me….
So now we have two values for returns. One is from moneycontrol and other is the fool-proof excel sheet.
- Moneycontrol : 18.78% p.a.
- Excel Sheet : 9.97% p.a. only.
Which is right?
Before we go into the argument of which is right, please note this fact that the invested money is growing only at the rate of 9.97% per annum.
No matter how strong will be my argument now to prove that moneycontrol’s value is also right, the crux of the matter is, the invested money of Rs.60,000 is not growing at 18.78% per annum. Period.
So now you know this fact.
When a website whose SIP calculator will show you a return like 18.78% per annum, you know that what you will actually get is about half of it (9.97%).
The reason for this ambiguity is “investment in instalments”. Please note that Rs.60,000 has not been invested all at once.
It makes a big difference. The invested money (Rs.1,000/month) earned difference effective returns as stated below:
- 18.78% – for money invested in the 1st month. It stayed invested for 60 months.
- 18.44% – for money invested in the 2nd month. It stayed invested for 59 months.
- 18.15% – for money invested in the 3rd month. It stayed invested for 58 months.
- 0.94% – for money invested in the 58th month. It stayed invested for 3 months.
- 0.62% – for money invested in the 59th month. It stayed invested for 2 months.
- 0.313% – for money invested in the 60th month. It stayed invested for 1 month.
Hence, not all our money earned the same return. The effective return was only getting lower and lower with passage of time. This is the reason why the net effective return came down to 9.97% from 18.78%
A person who invested all Rs.60,000 in the first month itself, will earn a return of 18.78% and not his/her SIP fellow, who is investing partly every month.
But do not be disheartened by this realization. In fact, take this as a small compromise for the convenience that SIP provides us.
Consider this, if I am not able to run a half-marathon, I have two choices with me. Either I can stay home and not take part in the race at all, or I can decide to walk all 21 kilometres. When the exercise is tough, taking a back seat is easy. But difficult is to motivate oneself to be a participant and do it anyways. How one acts even after having some limitations is what makes him/her the person he/she is. Best example: Stephen Hawking.
Investing through SIP is like that. One must take part in Race first. SIP helps the person to ignore their limitation of, not able to ‘time the market’ or lack of ‘know-how’ and still invest.
I strongly believe that, had there been no tool like SIP around, probably 80% people who are investing today, would have not boarded the investment-bus all together.
No excuse of “not investing” when SIP is around
People often give excuse that “I do not have enough money & time for investment”.
Monthly contribution required to start a SIP can be as low as Rs.500/month. So the money constraint is removed.
SIP invests money automatically without SELF intervention. So time constraint also gets eliminated.
Advantage of compounding of money can be seen clearly in SIP, specially when horizon is long term.
When I was younger I did not used to invest money. But SIP built that ‘investment habit’ in me.
Not investing is a bad habit one must avoid it under all circumstance.
Recurring deposit and SIP’s allows one to get rid of this bad habit in a very easy way.
SIP in Mutual Funds Vs SIP in Stocks
Yes, SIP in individual stocks is also possible.
But here the risk is higher than mutual funds.
A mutual fund portfolio consists of mix of several stocks. When one stock price falls its negativity can be balanced by the others.
But SIP in individual stocks cannot offer this balancing act (diversification).
I consider both as a great tool to accumulate equity (gradually in long term). SIP allows us to buy stocks/funds systematically.
The act of automatic buying is done through E.C.S. If we can accumulate equity like this, there can be nothing better.
Now the question arises; when it is possible to buy stocks directly (with SIP) why to pay extra charges to mutual funds?
There can be several justification in favour of mutual fund SIP. But I will provide the one which is most important.
When we invest in funds through SIP we need not bother about quality of stocks we are accumulating.
This is responsibility of the mutual fund manager. This is for what we pay them extra charges.
Easiest way to start a SIP Plan…
If one has an online trading account then starting SIP becomes easy. Lets take an example of how AxisDirect can help to start SIP. The procedure is simple.
Step1 is to select the AMC. In our example I have selected HDFC ASSET MANAGEMENT CO. LTD.
Step2 is to select the category of mutual fund. In our example I have selected EQUITY linked mutual fund.
Step3 is to select the Sub-Category of mutual fund. In our example I have selected DIVERSIFIED EQUITY fund.
Step4 – After entering 3 main parameters, click the ‘Magnifying Glass’ under Scheme Name. This will open a new pop-up window which which will show all fund under the said sub-category. Select your preferable scheme. In our example I have selected HDFC PREMIER MULTI-CAP FUND-GROWTH.
Step5 – is to select the monthly SIP amount & date start date of SIP. Period is months must also be confirmed. If one selects a period of 60 months, it means the SIP will continue uninterrupted for next 5 years.
Once done clicking on SUBMIT button SIP starts.
By merely investing Rs 1,000/month, @9.2% p.a, can build Rs 2.0 Lakhs in 10 years.
Same SIP amount will build Rs 6.9 lakhs in 20 years, @9.2% pa.
Investing Rs 1,000/month, @9.2% p.a, can build Rs.18.55 lakhs in 30 years, and Rs.44 lakhs in 40 years.
From these figures we can understand that, the more time we give to SIP, the bigger will be the corpus.
Jack and Peter are two friends. Both are 22 years of age. Jack decided to start a SIP to fund his after-retirement life. He started with a decent sum of Rs 2,500/month in diversified equity fund. A good diversified fund, generating an average return of 15% p.a., in a time span of 38 years, can build a corpus of Rs.5.8 Crore.
|Jack||Rs 2,500 monthly investment||Accumulated Savings Rs 5.8 Crore||At 60 years of Age (in 38 years)|
Effect of Inflation…
To understand what is the present value of Rs.5.8 crore, lets discount it with the rate of inflation.
Assuming that the average rate of inflation for next 38 years will be 6% per annum. Present value of Rs.5.8 Crore is 98 Lakhs.
What does it mean,?
98 lakhs (today) = 5.8 Crore (after 38 years).
So question that jack must ask here is, in todays term having Rs.98 lakhs as savings is good for retirement?
In most cases, for a middle class Indian, retiring today with close to Rs.1.0 crore as retirement fund should be enough.
Now lets see the case of Peter.
Peter realized the importance of saving and investing for retirement only 5 years later (at age of 27).
He began investing with the objective of accumulating Rs 5.8 crore. Peter must accumulate Rs.5.8 Crore by time he is 60 years of age. But in order to do it, he has only 33 years in hand. He must contribute a sum of Rs.5,3000/month in SIP. A good diversified fund, generating an average return of 15% p.a., in a time span of 33 years, can build a corpus of Rs.5.8 Crore for him.
|Peter||Rs 5,300 monthly investment||Accumulated Savings Rs 5.8 Crore||At 60 years of Age (in 33 years)|
Peter regretted and cursed himself for starting to invest late. Why?
See, Jack is investing only Rs.2500/month to build a corpus of Rs.5.8 Crore. While Peter has to invest more than double (Rs.5,300) to build a same corpus of Rs.5.8 Crore.
Why this happened? Because Peter started 5 years later than Jack.
So if you also want to become a crorepati by the time you retire, start investing now. Systematic Investment Plan (SIP) can be the best tool to reach the crorepati landmark.
Best SIP Plans of 2018 in India
These are top ranked mutual funds of India. Starting a SIP in these funds can be very profitable in long term
(Updated as on December’2017)
|SL||Mutual Fund||Star Rating of VR||Units (Nos.)*||Current NAV (Rs.)||Current Market Value (Rs.)||Effective Returns (SIP-5Y-%)||Lump Sum Investment Return (5Y)-%||Net Assets (Cr)||Expense Ratio (%)|
|1||SBI Small & Midcap Fund||5||2,700.30||58.3382||157,530.64||21.29%||35.80||808.18||2.33|
|2||Mirae Asset Emerging Bluechip Fund - Regular Plan||5||2,606.33||50.305||131,111.43||16.92%||30.12||4,819.87||2.45|
|4||L&T Infrastructure Fund||5||6,711.01||18.06||121,200.84||15.10%||22.40||967.47||2.37|
|3||Franklin Build India Fund||5||2,757.81||42.4396||117,040.35||14.30%||26.38||1,129.78||2.66|
|5||ICICI Prudential Banking and Financial Services Fund||5||1,909.80||59.85||114,301.53||13.76%||21.84||2,728.09||2.36|
|6||Aditya Birla Sun Life Advantage Fund||5||249.37||430.67||107,396.18||12.35%||21.80||4,904.10||2.29|
|7||Aditya Birla Sun Life Tax Relief 96||5||3,437.01||30.68||105,447.47||11.94%||21.42||4,266.07||2.31|
|9||SBI Magnum Multicap Fund||5||2,210.78||46.491||102,781.37||11.37%||20.50||3,468.33||2.04|
|10||Mirae Asset India Opportunities Fund - Regular Plan||5||2,194.01||46.262||101,499.29||11.09%||20.22||5,231.82||2.44|
|11||Invesco India Growth Fund||5||3,050.71||31.5||96,097.37||9.88%||18.09||244.43||2.56|
|12||SBI Bluechip Fund||5||2,506.47||37.3509||93,618.91||9.31%||17.88||16,480.46||1.97|
* Total number of units accumulated over a period of 5 years through Systematic Investment Plan (SIP)
Disclaimer: All blog posts of getmoneyrich.com are for information only. No blog posts should be considered as an investment advice or as a recommendation. The user must self-analyze all securities before investing in one.