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The concept of Systematic Investment plan (SIP) has been gaining a lot of popularity amongst Indian investors since last few years. It is an excellent way to create a long-term savings habit. It helps in creating a large corpus for the future Financial goals. In a SIP, a fixed amount is invested monthly in a fund on a specific date by the investor. Once you begin Investing monthly in a SIP for a longer period of time, your money starts growing every day (being invested in the stock Market). Systematic Investment Plan helps you to average your purchase cost and maximise returns. When an investor invests regularly over a period, irrespective of the market conditions, he would get more units when the market is low & less units when the market is high. This averages out the purchase cost of your mutual fund units. Similarly, let’s check some of the most important benefits of a SIP in the long-run.
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Some of the important benefits of a SIP are:
When you invest over a longer duration, your investment starts compounding. This means that when you earn returns on the returns earned by your investment, your money would start compounding. This helps you to build a large corpus over the long run with regular small investments.
SIP is a smart way to achieve all your long-term financial goals like retirement, marriage, purchase of a house/car, etc. Investors can simply start investing in Mutual Funds as per their financial goals and attain them at certain period of time. If one starts investing at an early age, there is enough time for their SIP to grow. In this way it also becomes easier to fulfil all their goals on time.
One of the most attractive parts of a systematic investment plan is its affordability. One can invest an amount as low as INR 500, which enables a route to a large number of Indians to initiate into investments. So, one who can’t make a lump sum payment, can invest via a SIP in Mutual Funds.
Investors often wonder of how SIPs are more profitable in the long-run than lump sum mode. Well, the historical data says so! Let’s check the data of the worst period of the stock market.
The worst period to start investing was around September 1994 (this was the time when the stock market had peaked). If one looks at the market data, the investor who had invested a lump sum sat on negative returns for 59 months (nearly 5 years!). The investor broke even in about July of 1999. The next year though some returns were generated, these returns were short lived due to the 2000 stock market crash subsequently. After suffering for another 4 years (with negative returns) and the investor finally became positive in October 2003. This was possibly the worst time to have invested a lump sum.
What happened to the SIP investor? The systematic Investment Plan investor was negative for only 19 months and started posting profits, however, these were short-lived. The SIP investors were up again by May 1999 after suffering interim losses. While the journey still continued to be shaky, SIP investors showed profits in the Portfolio much earlier.
So, who made better profits? The maximum loss for the lump sum investor was nearly 40%, whereas for the SIP investor was 23%. The systematic investment plan investor had a faster recovery period as well as a lower loss in the portfolio.
Some of the best mutual funds SIP for a long-term are as follows-
Large cap funds are a type of Equity Mutual Funds where the corpus is invested in the stocks of companies with large market capitalization. These companies are mainly large firms with large businesses & big teams. The market capitalization of these companies is INR 1000 Cr & more. Since, the investments are made in big companies, these firms have more possibility of showing year on year steady growth, which in turns also offers stability over a time. These funds are considered to be safe & less volatile to the market fluctuations compared to mid & Small cap funds.
Fund NAV Net Assets (Cr) Min SIP Investment 3 MO (%) 6 MO (%) 1 YR (%) 3 YR (%) 5 YR (%) 2022 (%) Nippon India Large Cap Fund Growth ₹59.2294
₹13,432 100 10.1 4.3 21.3 29.9 13.2 11.3 HDFC Top 100 Fund Growth ₹788.85
₹23,192 300 7.5 2 16.1 26.4 12.2 10.6 SBI Bluechip Fund Growth ₹67.2772
₹35,770 500 8.6 2.8 16.2 25.2 11.9 4.4 ICICI Prudential Bluechip Fund Growth ₹71.66
₹35,877 100 6.5 -0.1 13.7 24.5 12.3 6.9 TATA Large Cap Fund Growth ₹355.069
₹1,443 150 7.8 0.5 13.5 24.5 11.5 3.3 Note: Returns up to 1 year are on absolute basis & more than 1 year are on CAGR basis. as on 2 Jun 23
Mid cap and small cap funds are a type of equity mutual fund that invests in emerging companies in India. mid cap funds invest in companies which have a market capitalization of INR 500 to 1000 Cr. And, small caps are typically defined as firms with a market cap of around INR 500 Crore. These firms are called the future leader of the market. If the company does well in the future, these funds have a great potential to deliver good returns in the long-run. But, the risk is higher in mid & small cap funds. So, when an investor is investing in these funds, they should invest for a longer duration.
Fund NAV Net Assets (Cr) Min SIP Investment 3 MO (%) 6 MO (%) 1 YR (%) 3 YR (%) 5 YR (%) 2022 (%) Nippon India Small Cap Fund Growth ₹103.371
₹26,294 100 12.9 7.8 26.4 48.1 19 6.5 PGIM India Midcap Opportunities Fund Growth ₹45.07
₹8,072 1,000 6.1 -1.8 11.2 37.6 18 -1.7 Kotak Small Cap Fund Growth ₹174.273
₹9,230 1,000 8.5 4.1 12.4 42.8 17.6 -3.1 Motilal Oswal Midcap 30 Fund Growth ₹56.4622
₹4,033 500 11.1 6.6 27.4 39.3 17.3 10.7 ICICI Prudential Smallcap Fund Growth ₹58.94
₹5,036 100 12.3 6.2 17.5 44.4 17 5.7 Note: Returns up to 1 year are on absolute basis & more than 1 year are on CAGR basis. as on 2 Jun 23
Diversified Funds are a class of equity mutual funds. These are the funds that invest across market capitalization, i.e., in large, mid & small cap funds. As, diversified funds invest across market caps, they master in balancing the portfolio. Investors can create a good balance in their portfolio by investing in diversified funds. However, they would still be affected by the Volatility of equities during an unstable market condition.
Fund NAV Net Assets (Cr) Min SIP Investment 3 MO (%) 6 MO (%) 1 YR (%) 3 YR (%) 5 YR (%) 2022 (%) Nippon India Multi Cap Fund Growth ₹180.87
₹15,088 100 11.1 5.8 24.8 37.3 14.9 14.1 HDFC Equity Fund Growth ₹1,201.03
₹33,222 300 7.3 1.5 19.5 32.5 14.6 18.3 Mahindra Badhat Yojana Growth ₹21.8839
₹1,633 500 9.4 0.5 12.2 29.2 15.4 1.6 Baroda Pioneer Multi Cap Fund Growth ₹182.31
₹1,678 500 8.1 2.7 15.4 28.7 13.2 -3 Franklin India Equity Fund Growth ₹1,035.72
₹10,370 500 7.4 -1.2 13.6 28.4 12.4 5.3 Note: Returns up to 1 year are on absolute basis & more than 1 year are on CAGR basis. as on 2 Jun 23
sector funds invests in securities of specific sectors of the Economy, such as telecom, banking, FMCG, Information Technology (IT), pharmaceutical, and infrastructure, etc. For instance, a pharma fund can invest only in stocks of pharma companies and a banking sector fund can invest in banks. Being a sector-specific fund, the risk in such funds is higher. Thus, an investor should have an in-depth knowledge about the specific sector before investing in the fund.
Fund NAV Net Assets (Cr) Min SIP Investment 3 MO (%) 6 MO (%) 1 YR (%) 3 YR (%) 5 YR (%) 2022 (%) IDFC Infrastructure Fund Growth ₹28.041
₹651 100 13.4 9 25.9 37.7 10.2 1.7 Franklin Build India Fund Growth ₹76.3668
₹1,242 500 9.1 3.7 23.3 34.3 13.8 11.2 Aditya Birla Sun Life Banking And Financial Services Fund Growth ₹43.12
₹2,524 1,000 11.2 3 22 29.3 9 11.5 ICICI Prudential Banking and Financial Services Fund Growth ₹94.34
₹6,313 100 9.6 2.5 19 29 9.6 11.9 Sundaram Rural and Consumption Fund Growth ₹65.8286
₹1,124 100 10.3 2 18.4 22.2 9 9.3 Note: Returns up to 1 year are on absolute basis & more than 1 year are on CAGR basis. as on 2 Jun 23
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Very good for young generation.