In order to make schemes attractive and affordable for small investors, mutual fund companies offers SIP option.
One day my friend asked me about the best SIP Plans of 2016. He wanted to start a SIP as a beginner. SIP’s are super hit with small investors. But what makes SIP so popular?
Systematic investment plans (SIP’s) allows investors to invest gradually in mutual funds. Gradual investment, coupled with the benefit of compounding makes SIP a super-hit option. Small investors can buy mutual fund units by investing smaller amounts each month.
SIP is the best alternative to BIG lump-sum investment. Common men wants to invest their hard earned money, but due two big bottle necks they refrain themselves from investing. (1) Lack of funds and (2) Lack of investing know-how. Best SIP plans removes both these bottlenecks.
Best SIP plans allow small investors to invest smaller amounts under supervision of expert fund managers.
Investment in best SIP’s can start from as low as Rs 500/month.
This makes it extremely convenient for small investors to participate in the investment process. Moreover, the probability of losing money in SIP is also smaller.
The only care one should take in SIP’s is to stay invested for long term.
Investing in equity through SIP is ideal.
Direct investing in stocks has its own advantages and disadvantages. But for small investor, who lacks expertise, disadvantages are more dominant.
Investing indirectly in stocks through SIP route is best.
Investing in equity mutual fund through SIP is most likely to make more money than direct stocks investing.
Systematic Investment Plan Calculator
|Monthly Contribution(In INR)|
|Interest Per Annum (%)|
|Time (in years)|
|SIP Appreciated Amount(In INR)|
Advantage of Best 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|
– Invests Rs 1/mon for next 3 years @8% return. Appreciated money will be approx. Rs 40.
– Invests Rs 1,000/mon for next 3 years @8% return. Appreciated money will be approx Rs 40,000.
– Invests Rs 1/mon for next 9 years @12% return. Appreciated money will be Rs 194.
– Invests Rs 10,000/mon for next 9 years @12% return. Appreciated money will be Rs 19,40,000.
– Invests Rs 1/mon for next 15 years @14% return. Appreciated money will be Rs 612.
– Invests Rs 10,000/mon for next 15 years @14% return. Appreciated money will be Rs 61,20,000.
Example of Units Accumulation by investing in best SIP Plans
|Month||SIP Amount Per Month||NAV||No. of Units Purchased this month||Previous Balance Units (Nos)||Total Units (Nos)||Market Value (Rs)|
How to calculate return when invested in best SIP’s
Systematic Investment Plan (SIP) Vs. Recurring Deposit (RD)
Some thoughtful person questioned, why invest in SIP and why not RD?
Recurring Deposit is more of a saving option than an investment option. Returns of RD will be very low compared to SIP in long term.
SIP allows small investors to invest in equity. Though its returns will be very volatile in short term, but long term gain is 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 very high (in long term).
When we talk about long term, what is the period?
SIP in equity fund should not be for less than 4-5 years. In short term, NAV of SIP will be volatile. But when held for 4-5 years, growth will be assured.
While on other hand RD is very completely risk free.
When one keeps money parked for long term in equity funds, the risk of loss reduces dramatically. Return of 12%-15% per annum starts becoming very predictable.
Lets take example of a diversified equity mutual fund – HDFC Top 200. Long term return of HDFC Top 200 is 19.78%.
Investing in best SIP plans requires no market timing
SIP Investment is automatic investment. One need not worry about timing the market.
In systematic investment plans, small investors invests small amount of money each month. This way they keep accumulating mutual fund units without worrying about price levels.
When price is low, more units get purchased. When price is high, less units are purchased. This process happens automatically.
In equity investment, timing the market is important. But investing in equity through SIP eliminates this requirement.
In order to gain maximum benefits, expert investors buy low and sell high.
But SIP’s does not care to time the market. Systematic investment plan use the principle of rupee cost averaging. It gives average returns irrespective of market performing bullish or bearish.
When market is costly (bullish) less units will be purchased by SIP. When market is cheap (bearish) more units will be purchased by SIP. This is what trained investor does, buy more when market is down.
Systematic investment plans eliminates the excuse of NOT Investing
People often give excuse that “I do not have enough money & time for investment”.
Monthly required to start a SIP is very small (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 by 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 is 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 others.
But SIP in individual stocks cannot offer this balancing act.
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 ECS. 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 favor 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 mutual fund manager. This is for what we pay them extra charges.
What is the easiest way to start systematic investment plan (SIP)?
If one has an online trading account then starting SIP becomes easy. Lets take an example of how AxisDirect can helps 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’ unders Scheme Name. This will open a new pop-up window which which will 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 shall 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 at interest rate of 9% p.a one can make you Rs 2.0 Lakhs in 10 years.
Same SIP amount will build Rs 6.7 lakhs in 20 years, Rs 18.5 lakhs in 30 years and Rs 44 lakhs in 40 years.
From these figures we can understand that more time we give to SIP the bigger will be the corpus.
Jack and Peter were two friends. Both is of 22 years of age. Jack decided to start a SIP to fund his after-retirement life. He stared with a decent sum of Rs 2,500/month in diversified equity fund. Diversified fund can generate return @ 11% p.a. After 38 years, when Jack will be 60 years of age the retirement fund will be Rs 1.5 crore.
|Jack||Rs 2,500 monthly investment||Accumulated Savings Rs 1.5 Crore||At 60 years of Age (in 38 years)|
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 1.5 crore. Perter must accumulate Rs 1.5 Crore by time he is 60 years of age. But in order to generate Rs 1.5 Crore in 33 years he out Rs 4,2000/month in SIP. He later on regretted and cursed himself for starting to invest late.
|Peter||Rs 4,200 monthly investment||Accumulated Savings Rs 1.5 Crore||At 60 years of Age (in 33 years)|
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 2017 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 July’2017)
|Fund||VR Star Rating||Launch||Expense Ratio (%)||Return (5Y)||Net Asset (Cr.)|
|SBI Small & Mid Cap Fund||3||Sep-2009||2.38||32.17||691|
|DSP BlackRock Micro Cap Fund - Regular Plan||4||Jun-2007||2.34||31.96||5,818|
|Reliance Small Cap Fund||3||Sep-2010||2.03||31.93||3,767|
|Franklin India Smaller Companies Fund||4||Jan-2006||2.38||31.7||5,696|
|Mirae Asset Emerging Bluechip Fund - Regular Plan||5||Jul-2010||2.35||31.65||3,898|
|UTI Transportation and Logistics Fund||-||Apr-2004||2.54||30.93||1,125|
|Canara Robeco Emerging Equities Fund - Regular Plan||4||Mar-2005||2.35||29.32||1,896|
|SBI Magnum Midcap Fund||4||Mar-2005||2.03||29.07||3,733|
|L&T Midcap Fund||3||Aug-2004||2.3||28.29||950|
|Principal Emerging Bluechip Fund||4||Nov-2008||2.48||28.06||1,014|
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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.