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I want my monthly savings of Rs 40000 to invest in SIPs

I am salaried person having monthly savings Rs. 40,000. I want to start investing in S.I.Ps as have been hearing lots of benefits for long term (10-15 yrs). So, kindly guide on what all factors to think and decide to which SIP to invest in and how can a person who doesn't understand market well can understand risks associated and also monitor the growth of funds in SIP? Which SIPs are best to invest to receive long term gains(10-15 yrs)?

Aug 21, 2015 by Mukul Bhatnagar, Noida  |   Systematic Investment Plan

Yes, you have heard right. Investing in equity mutual funds through Systematic Investment Plans (SIPs) have lot of benefits. It can definitely help you in meeting your long term financial goals and create wealth for you over a long investment horizon. SIPs are ideal for investors who do not have equity investment expertise. Equity markets are inherently unpredictable in nature and volatile. Many investors who invest in equities end up buying when the prices are high and selling when prices are low. SIPs resolves the volatility problem for investors by investing systematically on a regular basis and take advantage of volatility by averaging the cost of your acquisition. In other words, if you invest systematically on a monthly basis, there will be months when the market will be high but there will also be months when the market will be low because of volatility. In the months when the market will be low you will buy more with the same investment amount. Despite the volatility over a period of time the value of your equity investment will keep on increasing. Equity funds on an average gave over 15% compounded annual returns over the last 10 years. The best equity funds gave over 20% compounded annual returns over the last 10 years, better than any other asset class.

Since you plan to invest through SIPs over a 10 – 15 year time horizon you need not worry about volatility or short term risks, as discussed above. You should determine what your financial goals are and based on determine how much you should invest on the monthly basis to meet your financial goals. You can use our SIP Calculator to determine how much you need to invest to meet your objectives. The next step is to identify some good funds and invest in them through SIPs. While you should not worry about market fluctuations, you should keep a track of how your funds are performing over a 3 year investment horizon. If the fund’s performance in good, you should continue with your investment in the fund. On the other hand, if the fund’s performance is not satisfactory, then you should switch to better performing funds. Some of the yardsticks used to measure a fund’s performance, relative outperformance of the fund versus a market benchmark (Sensex, Nifty, BSE 100, BSE 200, CNX 500 etc, depending on the fund). You can find out the market benchmark of a from its scheme information document or the fact sheet published by the AMC on a monthly basis. You can also get the information in our Mutual Fund Research section. A good fund should outperform the benchmark, both when the market is going up and when it is going down. In addition to performance against the benchmark, you should also evaluate the performance of the fund relative to its peers, so that you can ensure that you are not missing out on better investment opportunities. You can find this information also in our Mutual Fund Research section. However, you should avoid evaluating short term performance (12 months or less) and only focus on 3 years or more performance.

For your fund selection, you choose three or four funds and allocate your monthly SIPs to these funds. You can choose a combination of good large cap (e.g. Birla Sun Life Frontline Equity Fund, ICICI Prudential Focused Bluechip Fund, UTI Top 100 Fund, HDFC Top 200 Fund, Franklin India Opportunities Fund etc) and midcap funds (e.g. ICICI Prudential Value Discovery, Reliance Equity Opportunities Fund, Canara Robeco emerging equities fund, Principal Emerging Bluechip fund, Birla Sun Life MNC fund, DSP Black Rock Micro cap fund, SBI Magnum Midcap, Franklin India Smaller Companies etc.). Your financial advisor can help you select good funds for your portfolio. If you follow our blog, we regularly discuss the best performing mutual fund schemes.

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