Best SIP Plans to Invest in 2018 in India

Best SIP Plans - image

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.

More knowledge of SIP can help a person to invest wisely in mutual funds.

How this will help?

Through SIP, one can accumulate mutual fund units gradually.

This gradually accumulation, over time, can generate a huge corpus.

What makes SIP good?

SIP makes investment affordable & convenient for small investors.

One can buy units of mutual funds in small-small quantities each month.

As quantities purchased are small, the investors does not feel the burden of investment.

Hence, SIP investments have proved to be more sustainable.

#1. SIP invests gradually…

In the past decade, SIP plans has developed as a good habit among investors.

Both beginners & experienced investors prefer to invest in equity through SIP.

SIP invests our money gradually.

Coupled with this, the benefit of “compounding returns” also kicks-in.

These are reason what makes SIP one of the best long term wealth building option.

How is investment gradual in SIP?

In SIP, big amounts are not used to buy mutual fund units at a time.

Instead, smaller amounts like Rs.500 per month can be invested.

Investment is not lump-sump. Moreover, it does not stop after one-transaction.

Several small-small transaction every month makes a SIP.

When I started using SIP, I did the following:

  • Invested Rs.500 each month.
  • Continued investing this amount for 5 years.
  • Used SIP to accumulate diversified equity fund units.

It is true that in SIP the accumulation process is slow.

But it is a very sure way to gather units, without fail, every passing month.

Try our online SIP return calculator…

#2. What makes SIP Plans the BEST?

SIP is a great alternative to BIG lump-sum investment. How?

Given a choice, every one will like to invest money and make profits.

But due to these two big bottle necks, people refrain themselves from investing.

  1. Lack of funds and,
  2. Lack of investing know-how.

SIPs offered by mutual funds completely removes both these bottle-necks .

SIP can start from as low as Rs 500 per month. The upper limit can go as high as Rs.25,000+ per month.

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? In 2 ways:

  1. The invested money is spreadover months.
  2. The invested money is also well diversified.

The only care one should take after buying units through SIP is, to stay invested for long term.

#2.1 SIP or directly 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 on part of the investor.

SIP is indirect investing in stocks. There is a layer of protection in SIP.

It is best for people who do not have time to research individual stocks and then invest in it.

People are likely to make more money through SIP compared to direct stock investing.

Though I personally love direct investing investing in stocks.

I have my stocks analysis worksheet which helps me perform checks on stocks.

But I still accumulate majority of my equity using SIP route.

#3. 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 per month for SIP.

Lets use a magic table to evaluate the level of returns.

Rs 1/ Month 3Yrs 6Yrs 9Yrs 12Yrs 15Yrs
8.0% 40 92 158 242 348
10.0% 42 99 175 278 417
12.0% 43 105 194 322 504
14.0% 44 113 216 374 612

How to read the above table?

Yield @8% per annum, Investment Horizon: 3 years
  • Investing Rs.1 per month,
  • ROI @8% p.a.,
  • Time horizon: 3 years,
  • Size of corpus built: Rs.40.

Rs.1 per month becoming Rs.40 in 3 years.

Using the same multiplying factor of 40.

  • SIP of Rs.500 per month.
  • In 3 years.
  • Generates a corpus of Rs.20,000 (40 x 500).
Yield @10% per annum, Investment Horizon: 6 years
  • Investing Rs 1 per month,
  • ROI @10% p.a.,
  • Time horizon: 6 years,
  • Size of corpus built: Rs.99.

Rs.1 per month becoming Rs.99 in 6 years.

Using the same multiplying factor of 99.

  • SIP of Rs.1000 per month.
  • In 6 years.
  • Generates a corpus of Rs.99,000 (99 x 1000).
Yield @14% per annum, Investment Horizon: 15 years
  • Investing Rs 1 per month,
  • ROI @14% p.a.,
  • Time horizon: 15 years,
  • Size of corpus built: Rs.612.

Rs.1 per month becoming Rs.612 in 15 years.

Using the same multiplying factor of 612.

  • SIP of Rs.5,000 per month.
  • In 15 years.
  • Generates a corpus of Rs.30,60,000 (612 x 5000).

#4. Gradual ‘Units’ accumulation using SIP

Best SIP Plans - gradual

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.

These 397.989 units had 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 is 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 was referred as the advantages of spreading the investment.

[The invested fund us spread in 12 months.]

How this is an advantage?

When NAV is high (expensive), SIP amount of Rs.2000 is buying less units. This is also logical.

Buy less when things are expensive, right?

Similarly when NAV is low (cheaper), SIP amount of Rs.2000 bought more units.

#5. Lump Sum Investing Vs SIP

Best SIP Plans - Lumpsum

#1. Condition – NAV is only rising:

NAV of mutual fund is bullish. Price is moving up.

During this 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 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 = 22,400.

SIP:

  • Investment amount 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 = 12,656.

At the end of 4th month, market value of units are as follows:

  • Lump sum: Rs.22,400
  • SIP: Rs.12,656

Hence we can conclude that, in bulling market lump sum investing will be more profitable.

#2. Condition – NAV first falls and then recovers:

NAV of mutual fund is Volatile. Price is falling. Then it recovers.

During the course of time (say 4 months), the NAV of mutual fund first fell from Rs.23 to Rs.12.

Then it rose to Rs.30 levels.

In this case lets see, which investing style is better: Lump-sum or SIP.

Lump Sum:

  • Investment amount 8,000.
  • Number of units purchased 826(8000/23).
  • Market value of the held units at the end of 4th month is: Rs.30 x 347.826 = 10,434.

SIP:

  • Investment amount 2,000/mon(for 4 months).
  • Number of units purchased 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 = 12,608.

At the end of 4th month, market value of units are as follows:

  • Lump sum: Rs.10,434.
  • SIP: Rs.12,608.

Hence we can conclude that, in volatile market, SIP will be more profitable.

How does this information helps us?

In real life scenario Condition 2 is prevalent. Market is generally volatile.

Condition 1 is a rare phenomenon.

Hence, we can safely conclude that, SIP plans will prove better in normal times.

#6. Recurring Deposit (RD) Vs SIP

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.

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 the available time horizon, suitable investment option can be selected.

When time horizon is longer than 3 years, SIP plans will be better.

When time horizon is shorter than 3 years, bank RD will be better.

In short term, NAV of SIP will be volatile.

Hence chances of loss (if one redeems) will be very high.

But when units are held for more than 3 years, growth is more assured.

#7. 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 this can lead to a big misconception.

Not that moneycontrol gives a wrong data. The misconception happens due to wrong interpretation of data by us.

The return shown in moneycontrol will be like 18.78% (example).

But in reality, SIP will fetch you lower returns. Why?

To elaborate on this topic, I written a separate blog post.

Please read it by visiting this line [SIP return calculator].

This article has a SIP calculator that will also help one to calculate the “real returns” possible from SIP.

So doest this revelation makes SIP a bad choice?

Not at all.

SIP will continue to be the best investment plan for we common men.

#8. No excuse of “not investing” when SIP is around

People often give the following 2 reasons for not investing:

  1. Lack of money &,
  2. Lack of time.

But SIP has removed both these excuses.

SIP investments are low cost. Moreover, it requires no involvement of the investor.

SIP invests money automatically every month by use of an online mandate.

In my early days, I did not invest enough as I was not in the habit of doing it.

But SIP built that ‘investment habit’ in me.

Not investing is a bad habit. One must avoid it under all circumstance.

#9. 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.

SIP in mutual funds is better. Why?

Mutual funds are composed of several stocks in its portfolio.

When one stock’s price falls, its negativity can be balanced by the others.

But individual stocks has no outside protection.

Moreover, for non-experts in stocks, mutual funds provides another benefit.

No expertise is necessary to invest in mutual funds through SIP route.

 

On the other hand, stock investing requires lot of “business specific know how”.

This is what makes “direct stock investing” difficult for common man.

But isn’t mutual funds also contain stocks?

Yes, it does. But these stocks are very carefully bought.

Stock of good companies at right price.

It is responsibility of the mutual fund manager to buy stocks.

The investor has no obligation.

He/she can be rest assured that the money is handled well.

#10. 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.

Best SIP Plans - how to invest

Best SIP Plans - how to invest

Final Words…

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.

The fund generated an average return of 15% p.a..

Investment time span was 38 years.

What was the corpus built? 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 a sum close to Rs.1.0 crore is very fair.

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 (Jack had 38).

He must contribute a sum of Rs.5,3000 per month in SIP.

A good diversified fund (@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.

  • Jack was investing only Rs.2500 per month.
  • Peter was investing Rs.5,300 per month.

Both were doing 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 April’2018)

  1. SBI Small & Midcap Fund – Direct Plan
  2. SBI Small & Midcap Fund
  3. Aditya Birla Sun Life Pure Value Fund – Direct Plan
  4. L&T Midcap Fund – Direct Plan
  5. Aditya Birla Sun Life Banking & Financial Services Fund – Direct Plan
  6. ICICI Prudential Banking and Financial Services Fund – Direct Plan
  7. SBI Banking & Financial Services Fund – Direct Plan
  8. L&T Midcap Fund
  9. L&T Infrastructure Fund – Direct Plan
  10. Aditya Birla Sun Life Banking & Financial Services Fund – Regular Plan

Click here to check details of more (45 numbers) 5 star rated mutual funds. You will also get the minimum amount that must be invested in these funds through SIP route.

 

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