Why to buy Mutual Funds Systematic Investment Plan (SIP)?
A Systematic Investment Plan (SIP) is an investment tool offered by mutual funds to help investors to save regularly. SIP’s are a must buy mutual funds plan for lay investors. It is just like recurring deposit (RD) that people generally do with banks and post office where people deposit small amounts each month into their accounts. The difference between RD and SIP is that here your money is invested in mutual funds (indirectly in stocks etc). Hence in long term horizon the returns are much higher than bank RD’s or post office RD’s. Much higher returns in SIP’s has made them a must buy mutual funds plan for all investors.
Buy Mutual Funds SIP and it will make money even in the worst financial crisis.
Systematic Investment Plan (SIP) is one investment tool available with investors that gives maximum benefits even in the worst of times. Buy mutual funds SIP and it will give you the advantage of diversification and lower risk (as compared to stocks). The biggest advantage that is available with investors when they buy mutual funds SIP is its power to make money even in the worst of the financial crisis as seen by USA (& world) in past few years. Buy mutual funds SIP and you will not be required to track prices and movements of indices; simply allow your bank to transfer a fixed amount to a particular SIP each month without you even noticing that this money is actually getting invested and is fetching returns.
Let’s try to understand the importance to buy mutual funds SIP.
Suppose an investor has decided to buy a mutual funds SIP of $1200 each year just before the market crash. At that time the NAV of the funds was $10 (say). Now after four years of seeing a continuous market fall lets assume that NAV has regained its past level of $10. A stock market investor will never be happy to see that his investment has not appreciated in last 4 years. But an investor who has buy mutual funds SIP will be ecstatic with this type of price movements. Let us see why:
| 2006 | 2007 | 2008 | 2009 | 2010 | |
| Amount Invested | $1200 | $1200 | $1200 | $1200 | $1200 |
| NAV ($) | $10 | $8.5 | $7.0 | $8.5 | $10 |
| Units (Nos) | 120 | 141 | 171 | 141 | 120 |
- Total units purchased in 4 years (2006 to 2009) = 573 Nos
- Present NAV = $10
- Present Value of Investment = $5730
- Cost of Investment = $4800
- Profit = $970 (20%)
As specified in the above example, even when there was no appreciation in NAV but the investor has made profit of 20% on his investment in buy mutual funds SIP. This is power of SIP, it can make you earn money taking advantage of falling market.
What are the advantages to buy mutual funds SIP to invest in direct equity?
Small savings (Rs 1000 /month) through SIP may not seem so motivating for beginners but I propose all newbies must start their investment and buy mutual funds SIP. Its first advantage is that it allows the investors to get into the habit of saving when they buy mutual funds SIP. A small savings of just Rs 1000 a month at a rate 9% rate of return can fetch you Rs 6.65 lakhs in 10 years. The best thing is that you will not even notice that Rs 1000 is getting invested each month and at the end of 10 years you will have Rs 6.65 lakhs at your disposal. If you would have not invested in SIP, you would have spent it any how. Its much better that one should buy mutual funds SIP. Mutual Fund companies directly debit your account the amount of money you approve (say Rs 1000) each month without disturbing you. SIP is convenient and that is the reason why even cash-rich choose to buy mutual funds SIP. SIP can make make their savings grow faster.
| Buy Mutual Fund SIP and see a substantial growth of savings | ||||
| Savings per month | Total amount invested | Rate of return | ||
| (for 15 years) | (Rs. in Lacs) | 6.00% | 8.00% | 10.00% |
| In Rs. Lakhs (15 years after) | ||||
| 5000 | 9 | 14.6 | 17.4 | 20.9 |
| 4000 | 7.2 | 11.7 | 13.9 | 16.7 |
| 3000 | 5.4 | 8.8 | 10.4 | 12.5 |
| 2000 | 3.6 | 5.8 | 7 | 8.3 |
| 1000 | 1.8 | 2.9 | 3.5 | 4.2 |
A must Buy Mutual Funds SIP is listed below;
- HDFC Arbitrage Fund (Rs 500/month)
- HDFC Balanced Fund (Rs 500/month)
- HDFC Capital Builder Fund (Rs 500/month)
- HDFC Children’s Gift Fund (Rs 500/month)
- HDFC Equity Fund (Rs 500/month)
- HDFC Income Fund (Rs 500/month)
- HDFC Top 200 Fund (Rs 500/month)
- HDFC Prudence Fund (Rs 500/month)
A must buy Mutual Funds reference list for all investors
| Equity Diversified | Last 1Yr. return |
| Birla SL Dividend Yield (G) | 84% |
| Birla SL Long Term Adv.-Sr1(G) | 110% |
| Birla SL Pure Value Fund (G) | 81% |
| DSP-BR Micro Cap Fund – RP (G) | 163% |
| DSP-BR Small & Mid Cap -RP (G) | 115% |
| ICICI Pru Discovery Fund (G) | 128% |
| ICICI Pru Emerging S.T.A.R.(G) | 96% |
| IDFC Premier Equity – A (G) | 97% |
| IDFC Small&Midcap Eqty -G | 104% |
| Principal LT Equity 3yr Sr2(G) | 117% |
| Reliance Equity Oppor – RP (G) | 103% |
| Reliance RSF – Equity (G) | 97% |
| SBI Magnum Emerging Busi (G) | 103% |
| Sundaram S.M.I.L.E Fund (G) | 113% |
| Sundaram Select Small Cap (G) | 112% |
| UTI Dividend Yield Fund (G) | 82% |
| UTI Master Value Fund (G) | 112% |
| UTI Mid Cap (G) | 107% |
Top 10 Indian Mutual Funds House Operating in India
| 1 | Reliance MF | Rs 101, 577 Cr. |
| 2 | HDFC MF | Rs 86,282 Cr. |
| 3 | ICICI Prudential MF | Rs 73,466 Cr. |
| 4 | UTI MF | Rs 67,189 Cr. |
| 5 | Birla Sun Life MF | Rs 63,696 Cr. |
| 6 | SBI MF | Rs 41,672 Cr. |
| 7 | Franklin Templeton MF | Rs 37,883 Cr. |
| 8 | Kotak Mahindra MF | Rs 32,202 Cr. |
| 9 | DSP BlackRock MF | Rs 30,601 Cr. |
| 10 | Tata MF | Rs 22,681 Cr. |
Why to Consider Mutual Fund Systematic Investment Plan (SIP) Route for investing in Equity
For lay investors Systematic Investment Plan (SIP) route towards investing in risky equities is very logical because of following reasons:
(1) Mutual Fund gives lay investors the opportunity to manage their money very professionally.
As funds are managed by qualified Mutual Fund Manager, it becomes very effective for lay investors to consider SIP mutual fund as their investment vehicle.
(2) Investment Diversification becomes very easy in mutual fund SIP investment
It is always said that one should not put all eggs in one basket. Mutual Funds gives that advantage to investors to diversify their investment among several stocks to near perfection.
(3) SIP Investment Style in Mutual Fund makes is very convenient for investors to invest in equity
As SIP allows investors to invest small amount of money on monthly basis, it is very convenient for small investors to invest in equity. Not only this, one has to do only one time work in finalizing the formalities to start SIP, but once done you will not be bothered and your money gets invested month after month to your advantage.
You can read more here
- Exchange Traded Funds (ETF)
- Introduction to mutual funds
- Top 5 rules of long term investment
- Start stock market investment
- Share guide
- Ways of generating extraordinary wealth
- How Warren Buffett became a billionaire
- Hot stocks of BSE
- Investment tips
Related posts:
we have written an interesting blog note on how SIP works.
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Dear sir , I am AJITH 29years-income Rs.300000/annum (my income will grow by 10-15% every year.) Have SIPS of Rs 2000 each in SBI gold fund, HDFC top 200, IDFC premier EQUITY & BIRLA SL dividend YIELD for 2 months(all growth OPTIONS). I will continue my SIPS for 25-35 years.
(have sufficient insurance-TERM,health,critical ILLNESS & accident). Saves additional Rs 8000 per month for short term GOALS…
Will marry in 1 year & have separate fund for this…
money from MUTUAL FUNDS will be used for …. (1) buying home for 20lakhs in ten years. (2) CHILDREN’S education & marriage (3) RETIREMENT @ 65YEARS …. Will increase SIP in HDFC T200 to 4000 next year & increase all SIPS by 20% annually. Looking forward to join one more SIP Rs 2000 in a LARGE CAP fund (UTI DIVIDENT YIELD)…. Will join a tax saver MF next year.(not interested in shares) .
Please give your valuable suggestions on my portfolio… is it well diversified… is it ok to have 2 dividend yield funds… please guide.
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