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Mutual fund investors alert! Absolutely everything you want to know about your SIP money
Investment amount in SIP starts as low as Rs 500 per month, which eliminates the burden of managing your overall expenses on monthly basis.
There is a saying that goes something like this: 'With higher risk comes higher returns'. This is absolutely true for equity investment. But not all have access to massive funds, and not all are capable of taking heavy risk. For these people, Mutual Fun Systematic Investment Plans (SIP) come as best pick. But currently a lot has changed in mutual fund market as stock exchanges have been highly volatile. To safeguard yourself from this volatility and to keep adding profit to your investment, SIP is the way to go. SIP is also an easy step to take and it even ensures discipline in your savings habits.
All you have to do is open an SIP account with a financial institution, and link it with your bank account. Depending upon your investment strategy, money will automatically get deducted from your bank account on weekly, monthly or quarterly basis.
Pros of investing in SIP involves:
The pressure is not on you for speculating or focus on timing the market - such is not the right way for generating returns over long term.
Considering there are intervals of investment like weekly, monthly or quarterly, you tend feel very little impact of market volatility.
It is highly disciplined, passive and automated. Funds get deducted automatically from bank, which makes you more committed to guaranteed saving/investment.
Hassle-free and flexible. Any citizen can create/update/cancel SIP anytime.
Investment amount in SIP starts to as low as Rs 500 per month, which eliminates the burden of managing your overall expenses on monthly basis, as very little is deducted.
There are two methods which greatly help investors earn big through SIPs.
Firstly is rupee-cost averaging. As we are aware that market is sentiment driven and unpredictable, this creates an issue on when is the best time for investment. With rupee-cost averaging, an investor with his invested SIP amount earns more units when the price is low and earns less units when the price is high.
Second would be power of compounding. Every amount you invest, you earn interest on it. This interests get compounded and accumulated over a period of time. The higher the SIP tenure the higher would be your return.
But here's what is happening in SIP market currently.
In last three years, Indian markets witnessed a a lot of money hitting the markets via SIP. Data given by Edelweiss Financial Services revealed that, monthly SIPs increased from Rs 3,000 crore per month to the high of Rs 8,000 crore per month till Nov-18. Since Apr-16 till Jun-19 a simple sum of the SIP flows stands at Rs 228,347 crore.
Over the last few months, Abhilash Pagaria analysts at Edelweiss said, "the number has held well above Rs 8,000 Cr per month. Although it’s good to see the overwhelming response from the Indian retailers but after a period of more than 5 years have the returns generated met the expectations of investors needs to be checked."
To analyze the average returns from the money invested via SIP every month, Edelweiss analyst conducted an analysis on the top 10 growth schemes in each of the 5 Categories of Market cap schemes over the different time period of 1 to 5 years.
From the analysis, it was noted that, large cap schemes have been better off as against the other category followed by the Multi-cap schemes but not a great CAGR of around 3% in these schemes. Worst hit are the Small cap and Mid cap schemes where the Small cap SIP for last 1,2,3 and even 4 years is negative.
Thus, Pagaria said, "Broader question is what’s next? Will the pool of domestic flows of past 5 years continue or redemptions will create a double whammy. We expect SIPs to still hover around the INR 8000 Cr per month mark but if markets continue to deteriorate, Retail may soon ask, “Show me the Money!!!”
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