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"Ready to Invest" SIP Portfolios
July 1, 2016

Our SIP Portfolios which investors can consider investing in for the long term.


Author : iFAST Research



 Systematic Investment Plans and their Benefits

If you remember the childhood story of the Tortoise and the Hare, then the Systematic Investment Plan (SIP) is equivalent of the tortoise in the race to create wealth.  Systematic Investment Plans, or SIPs as commonly known, offer benefits while making sure that you continue moving slowly but surely to win the race in money matters.

What is an SIP?

SIP, also known as Regular Savings Plan (RSP) in some countries, allows you to invest a fixed amount at pre-defined frequencies in mutual funds. A recurring deposit offered by bank or post office is the only other investment option that is similar to SIP. There are two options that an investor could take when they are making investments; one would be to invest a lump sum into mutual funds and the other would be to invest using an SIP. The following are some of the benefits associated with investing via an SIP:

1)     SIP enforces investing discipline

Many people have burnt their fingers and in some case even their “hands” by investing at will and based on rumours.  SIPs take away the risk of both. As SIPs require you to invest periodically and continuously and over time, SIPs make periodic investing more of a habit. By regularly investing you tend to be more focused on achieving your financial goals. This brings in investing discipline.

2)     No need to time the markets

Everyone in the market wants to buy low and sell high. This is known as timing the market.  The only catch is that no one knows when to buy and when to sell.  Timing the market is a risky and time-consuming process as:
i)    One has to identify and research stocks that are undervalued to invest in them.

ii)    Even after investing in the stock, one is not guaranteed of the returns.

Table 1: An example of a fund's NAV movement

Month

Price (Rs / Unit)

January

10

February

11.4

March

9

April

10.3

May

9.5

June

8.9

July

10.8

August

11.9

September

8.5

October

9.8

November

11.7

December

8.3

Source: iFAST Compilations


Table 1 is an example of a fund's NAV movement. If you believed in timing the market, then in September you would have bought each unit for Rs.8.5 and in November you would have sold at Rs. 11.70. This sounds easy in hindsight but the bigger issue would be that when you bought into the stock in September:
a)     You are not sure when will it go up
b)    You are not sure when to sell it
With SIP, the need to time the market is eliminated due to the concept of Rupee Cost Averaging.

3)     Rupee Cost Averaging (RCA)

Rupee Cost Averaging (known in the West as Dollar Cost Averaging) is an investment strategy widely used by investors all over the world. This calls for you to invest a fixed amount of money regularly (on a monthly, quarterly or yearly basis) in a disciplined manner. The main benefit of RCA is that it takes the guesswork out of investing and thereby the need to time the markets. A lot of stress is avoided as you do not have to decide whether the fund is expensive or not and whether the market condition is suitable to invest. Table 2 is an example of how more units are acquired when prices are low and vice versa assuming that you invest Rs. 1,000 every month.

Table 2: Units acquired every month for Rs.1000 invested through SIP

Month

Monthly Investment Amount (Rs.)

Price (Rs / Unit)

Units Acquired

January

1000

10

100

February

1000

11.4

87.72

March

1000

9

111.11

April

1000

10.3

97.09

May

1000

9.5

105.26

June

1000

8.9

112.36

July

1000

10.8

92.59

August

1000

11.9

84.03

September

1000

8.5

117.65

October

1000

9.8

102.04

November

1000

11.7

85.47

December

1000

8.3

120.48

Total

12,000

-

1215.8

Source: iFAST Compilations


Since the amount is fixed, the number of units that you can subscribe to in a particular fund varies. If the price of the fund increases, you would naturally be able to subscribe to a lesser number of units. You would buy more units during market slumps and fewer units during market up-turns.

Table 2 is an example of RCA. If you had Rs. 12,000 to invest, you could choose to invest all of your money (lump sum) or invest Rs. 1,000 every month (SIP). If you chose to invest a lump sum of Rs.12,000 in January, you would have 1,200 units. The cost per unit is Rs. 10. On the other hand, if you invest through an SIP, you would have 1,215.8 units by the end of December. The cost per unit is Rs.9.87, and hence, the potential loss is lessened. From the above example, the return when investing  a lump sum is -17%, the return of the SIP is -15.9%.

4)     Very low monthly investments

Most SIP schemes require you to put in very low amounts. The amounts can be as low as Rs. 500 to Rs. 1,000 per month and some schemes have even lowered the bar by requiring you to pay Rs. 100 only per month. This way, you can regularly invest and not feel the pinch.

5)     Taxes

SIPs are taxed for capital gains on a first-in first-out (FIFO) basis. Consider the values in Table 1; suppose you sold 300 units in February the next year. Short-term capital gains will only be levied on the number of units bought in February, March and April and not on the units bought in January. Gains from the units bought in January will be considered for long-term capital gains and not for short-term capital gains.

Some points you might want to think through before starting an SIP:
  1. Decide on the monthly investment amount that you can sustain over the investment period. For example, it can be Rs.1,000, Rs. 2,000, Rs. 5,000 or any amount that you are comfortable with.
  2. Select the funds in which you want to invest through SIP, but make sure that the portfolio is diversified.  For example, you can invest Rs.500 in 10 mutual funds or Rs.1, 000 in 5 funds if you had chosen Rs. 5,000 as the sustainable monthly investments in the previous point.

Our Pre-Packaged SIP Portfolios

Conservative Portfolio

SIP Investment

>5 Years

2000-5000

ICICI Prudential Focused Bluechip Equity Fund (50%)

Tata Balanced Fund (50%)

5000-10000

ICICI Prudential Focused Bluechip Equity Fund (30%)

SBI Blue Chip Fund (30%)

Kotak Select Focus Fund (20%)

Tata Balanced Fund (20%)

>10000

ICICI Prudential Focused Bluechip Equity Fund (20%)

SBI Blue Chip Fund (25%)

IDFC Premier Equity Fund (20%)

Kotak Select Focus Fund (15%)

Tata Balanced Fund (20%)

 

Moderate Portfolio

SIP Investment

>5 Years

2000-5000

ICICI Prudential Focused Bluechip Equity Fund (50%)

Tata Balanced Fund (50%)

5000-10000

ICICI Prudential Focused Bluechip Equity Fund (30%)

Kotak Select Focus Fund (30%)

Mirae Asset Emerging Bluechip Fund (20%)

Tata Balanced Fund (20%)

>10000

ICICI Prudential Focused Bluechip Equity Fund (20%)

IDFC Premier Equity Fund (20%)

Kotak Select Focus Fund (15%)

Mirae Asset Emerging Bluechip Fund (25%)

Tata Balanced Fund (20%)

 

Aggressive Portfolio

SIP Investment

>5 Years

2000-5000

Birla Sun Life Frontline Equity Fund (50%)

Tata Balanced Fund (50%)

5000-10000

Birla Sun Life Frontline Equity Fund (20%)

SBI Emerging Businesses Fund (25%)

Mirae Asset Emerging Bluechip Fund (30%)

Reliance Small Cap Fund (15%)

Tata Balanced Fund (10%)

>10000

Birla Sun Life Frontline Equity Fund (15%)

SBI Emerging Businesses Fund (15%)

Kotak Select Focus Fund (15%)

Mirae Asset Emerging Bluechip Fund (30%)

Reliance Small Cap Fund (15%)

Tata Balanced Fund (10%)

 

The table below reflects the recommended fund performance on the assumption that the investor would have invested Rs 2000 per month for a period of 5 years:

Funds

Category

Total Amount Invested (Rs.)

Present Value (Rs.)

CAGR

ICICI Prudential Focused Bluechip Equity Fund

Large Cap Fund

120000

172,880

14.60%

SBI Blue Chip Fund

Large Cap Fund

120000

194,086

19.33%

Birla Sun Life Frontline Equity Fund

Large Cap Fund

120000

182,056

16.71%

Kotak Select Focus Fund

Multi Cap Fund

120000

196,210

19.78%

IDFC Premier Equity Fund

Multi Cap Fund

120000

199,459

20.46%

SBI Emerging Businesses Fund

Multi Cap Fund

120000

191,273

18.73%

Mirae Asset Emerging Bluechip Fund

Mid Cap Fund

120000

248,070

29.57%

Reliance Small Cap Fund

Small Cap Fund

120000

252,706

30.35%

Tata Balanced Fund

Balanced Fund

120000

187,230

17.86%

 

Note:
Start Date for SIP is July 1, 2011
End Date for SIP is June 1, 2016
Market Value as on June 29, 2016.


Disclaimer: iFAST and/or its content and research team's licensed representatives may own or have positions in the mutual funds of any of the Asset Management Company mentioned or referred to in the article, and may from time to time add or dispose of, or be materially interested in any such. This article is not to be construed as an offer or solicitation for the subscription, purchase or sale of any mutual fund. No investment decision should be taken without first viewing a mutual fund's scheme information document including statement of additional information. Any advice herein is made on a general basis and does not take into account the specific investment objectives of the specific person or group of persons. Investors should seek for professional investment, tax, and legal advice before making an investment or any other decision. Past performance and any forecast is not necessarily indicative of the future or likely performance of the mutual fund. The value of mutual funds and the income from them may fall as well as rise. Opinions expressed herein are subject to change without notice. Please read our disclaimer on the website.Please read our disclaimer in the website.



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