Mutual Fund SIP verses Lump Sum Investment – Let us YOU choose wisely..! Radha Consultancy

Mutual Fund SIP verses  Lump Sum Investment  – Let us YOU choose wisely..!   by Meenakshi sundaram Kannan, Radha Consultancy, https://radhaconsultancy.blogspot.com SIP – Current Review SIP is a famous word. Many investors start SIP  with high expectation. In the last two years,  many more fund houses and intermediaries,   encouraged investors to have SIP based investments. Have their expectations been met?  If we evaluate SIP’s performance in this fallen market,  then the obvious answer would be ‘NO’.   Should we feel bad for the fate of SIP?  Not really, instead it would be good to  understand what SIP actually is! Due to the fall in markets, the profits we get out  of SIP is also falling.  The best Equity funds 1-year SIP return  percentage ranges from -5% to -15%.  The returns from the other funds might  be even lesser than this which is  clear from the table shown below. Is this the outcome that we envisioned while we invested?   Certainly not, our expectation was that SIP is a  Superstar plan and there was no way that it  can produce losses.  But in reality, the return numbers returned  by SIP is lower than the ones we expected. Value Research’s top 5 star studded best Equity funds profit percentage – 10 Nov 2018 Fund Type 1 Year 3 Years 5 Years Axis Long Term Tax -5.45 10.09 12.74 Mirae Asset Emerging Bluechip Large and Mid-Cap -5 12.37 18.42 Axis Bluechip Large Cap -3.21 11.02 10.78 L&T Mid Cap Mid Cap -15.15 9.26 15.65 SIP vs Lumpsum Some people are now thinking that  they should have invested in Lumpsum instead of SIP.  It’s like the saying “The grass is always greener on the other side of the fence”.  The closer we go, the dangers of Lumpsum becomes visible.  To understand SIP and Lumpsum,  we also need to take a closer look at Lifestyle practices.  In some situations, you might not be able to  invest in Lumpsum plans. For instance,  a monthly salaried person who wishes to  invest small amounts in mutual funds  every month might find it comfortable  to invest in a SIP plan.  Similarly, when you have the money  readily available to invest in a  Lumpsum fashion, it is not advantageous to invest in  a SIP based plan.  In this market fallen times, it would be more profitable  if we invest through the Lumpsum option.  When we have enough money in hand,  we shouldn’t be adamant  that we will invest only through SIP.  In the coming months and years,  if the market keeps fluctuating,   then SIP mode might be suitable. Example to understand better The following table gives, returns for investment  done for same amount and same duration  via Lump sum and SIP.  Let us keep in mind, in lump sum,  the money is with fund house for more time,  where as in SIP, money is paid in installments –  hence return varies. For simplicity purpose,  we have taken the returns for the amount  invested with fund only.  (See the blue shaded first case in the table, for  SIP absolute market value is less = 162707  but annual return is more = 10.10%,  whereas in  lump sum, absolute  market value is more = 172451  but return is less = 6.5%  this is because in lump sum,  invested amount is more time in the fund than sip,   but created less return, because investment  started when market was  trending higher vale –Sensex 29220) Fund used for comparison = Axis Blue-chip Fund - Growth SIP amount per month = Rs 3,000 Return calculations till 12/11/2018 Current Sensex = 34812 (on the day of return calculation) Start date Paid months Invested value Market value Return Sensex Mode 27-02-2015 45 135000 162,604 10.10% 29220 SIP 27-02-2015 135000 172,451 6.5% Lump sum 16-09-2016 26 78000 85,913 8.92% 28599 SIP 16-09-2016 78000 96,498 9.9% Lump sum 23-12-2016 23 69000 74,640 8.32% 26090 SIP 23-12-2016 69000 97,734 18.3% Lump sum Some important points  that we need to know about SIP ·         SIP is not isolated from the falling markets.  Profit and Loss is part of the market.  SIP can lead to losses too.  ·         During current market weakness,  we should not stop investing in  SIP based plans.  SIP investments can turn out good  during fluctuating markets.  ·         One thing that was evident from the table is,  even when SIP posted negative 1-year returns,  its 5-year returns looked to be in good shape.  ·         During the SIP time period itself,  we can invest in the same plan on a  Lumpsum option at least once.  This one has a chance of turning profitable.  There is nothing wrong in this and  need not worry about it.  ·         Investing in the peak times  SIP is better than lump sum –  first case in the table with light blue shade ·         SIP in rising market will not give better returns,   lump sum at the beginning of rising market  will give good returns – refer Last case in the table –  light green shade. ·         There are two kinds of investment options.  Based on the situation and the amount  of money we are willing to invest,  we can invest in either of the options.  It is very hard to predict or conclude  which option is the best for each time period.

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