What is a Systematic Investment Plan (SIP)?

SIP is a method of investing a fixed sum, regularly, in a mutual fund. It is very similar to regular saving
schemes like a recurring deposit.
An SIP allows you to buy units on a given date each month, so that you can implement an investment /
saving plan for yourself. Once you have decided on the amount you want to invest every month and the
mutual fund scheme in which you want to invest, you can either give post-dated cheques or ECS
instruction, and the investment will be made regularly. SIPs generally start at minimum amounts of Rs
1,000 per month and the upper limit for using an ECS is Rs 25000 per instruction. Therefore, if you wish
to invest Rs 100,000 per month, you may need to do it on 4 different dates. ( Also read - Demystifying
NAV myths)
As is customary, I started with describing the concept of an SIP. Let us break some myths on SIP now.
Investment in equity mutual funds or unit linked insurance should always be done in SIP mode:
I remember in 1999 when Templeton Mutual fund would talk about SIP the market looked at it
skeptically. And it took a lot of convincing for customers to accept it. Now, life has come a full circle.
Everybody wants to (always) invest using an SIP. If you have the maturity and calmness to realize that
equities are for the long term and are willing to give your funds about 10 years, and you have a lump sum,
you can afford to give the SIP route a pass. However, if your horizon is less than five years, you must do
an SIP.
I do rupee cost averaging in a single equity that is a kind of SIP is it not? This is a question I face
every day. No, a rupee cost averaging in a single scrip cannot be equated to an SIP. When the market
brings down the price of a single scrip, it is giving you information. You need to react to that.
Let us take 2 examples Lupin Laboratories has moved from a high of Rs 700 to Rs 100 and back to
Rs 700. The question to ask here is not whether an SIP would have worked. The question to ask is
whether you would have had the stomach to continue the SIP through this period. Silverline Technologies
moved from Rs 30 to Rs 1300 to Rs 7! In this case, if you had started an SIP at a price of Rs 1300, today
you would be licking your wounds. SIP works in a portfolio, not in a single scrip.
You cannot invest a lump sum in the same account in which you are doing an SIP: Many people
assume that if they are doing an SIP in a particular fund, and suddenly they have a surplus, they cannot
put that lump sum in that account. Fact is, in case you are doing an SIP of Rs 10,000 per month in an
equity fund, and suddenly you have a surplus of Rs 100,000 and clearly you have a 10-year view on the
same, then you can just push it into your SIP account. SIP is just a payment mode, not a scheme!
If I miss investing for a particular month, will they prosecute me? Now, this is the fear of EMI that
people have. In an SIP you are buying an investment every month (or quarter), there is no question of
prosecuting you for missing one investment. As a matter of discipline, you should not miss any month;
however, missing one months investment is not a crime!
When you have a surplus (accumulation stage of your life) you should do an SIP and during
retirement you should do a SWP: No. You should ideally keep your withdrawals only from an income
fund or a bank fixed deposit. You should sell an equity fund on some other basis, say deciding to sell 20%
of your portfolio in a year so that the return is 4 times the 30 year historic return. SWP, by definition
cannot work in an equity fund! (Also read - 7 good reasons to invest in SIPs)

SIP works for everybody, but does not work for me: Another myth. SIP works in a well-diversified
equity fund in the long run. When people put forth arguments that it does not work for them, they have
either not chosen a good fund or are looking at a 12 month horizon.
SIP is only for small investors: Nothing can be farther from the truth. I have a client who has invested
Rs 32.66 lakhs using SIP, starting from January 1998 till date. Obviously, he has invested much more in
later years as his income went up and the funds together are worth Rs 97 lakhs, substantially higher than
his provident fund.
Market is at very high level to start an SIP: I have heard this when the index was 3000 also. I have no
clue where the market is headed, but I know SIP works!
All fund houses are now charging a full load on the SIP, so now SIP will not work Why not time the
market? Introducing an entry load was expected to happen and it has happened. What actually hurts the
retail investor is the asset management charges 2.5% in most cases is a bigger threat to
compounding! (Also read - How to optimize your tax using mutual funds?)
If I do an SIP in a tax plan, can I withdraw all the money on completion of 3 years? Another regular
question almost! Every installment has to be with the fund house for 3 years. The lock-in comes from the
Income tax rules, which say that a tax saving scheme should have a 3-year lock-in. You cannot escape
that by doing an SIP!

SIP..
There are two ways in which you can invest in a mutual fund.
1. A one-time outright payment
2. Periodic investments
This is referred to as a SIP. (second one)
That means that, every month, you commit to investing, say, Rs 1,000 in your fund. At the end of
a year, you would have invested Rs 12,000 in your fund.
Let's say the NAV on the day you invest in the first month is Rs 20; you will get 50 units.
The next month, the NAV is Rs 25. You will get 40 units.
The following month, the NAV is Rs 18. You will get 55.56 units.
So, after three months, you would have 145.56 units. On an average, you would have paid
around Rs 21 per unit. This is because, when the NAV is high, you get fewer units per Rs 1,000.
When the NAV falls, you get more units per Rs 1,000.
Here are some FAQs on the SIP
1. Is there a load?
An exit load is a fee you pay the fund when you sell the units, just like the entry load is a fee you
pay when you buy the units.
Initially, funds never charged an entry load on SIPs. Now, however, a number of them do.
You will also have the check if there is an exit load. Generally, though, there is none. Also, if
there is an entry load, an exit load will not be charged.
An exit load may be charged if you stop the SIP mid-way. Let's say you have a one-year SIP but
discontinue after five months, then an exit load will be levied. These conditions will wary
between mutual funds.
2. What is the minimum investment?
If you do a one time investment, the minimum amount that you have to invest is Rs 5,000.
If you invest via an SIP, the amount drops. Each fund has their own minimum amount. Some
may keep it at least Rs 500 per month, others may keep it as Rs 1,000.
3. How often does one have to invest?

It would depend on the fund.

Some insist the SIP must be done every month. Others give you the option of investing once in
three months or once in six months.
They also give fixed dates. So you will get the option of various dates and you will have to
choose one. Let's say you are presented with these dates: 1, 10, 20 or 30. You can pick any one
date.
If you pick the 10th of the month, then on that day, the amount you have decided to invest in the
fund has to be credited to your mutual fund.
4. How will an SIP help?
When you buy the units of a fund, you may do so when the NAV is really high. For instance, let's
say you bought the units of a fund when the bull run was at its peak, leading to a high NAV.
If the market dips after that, the value of your investments falls and you may have to wait for a
long while to make a return on your investment. But, if you invest via a SIP, you do not commit
the error of buying units when the market is at its peak. Since you are buying small amounts
continuously, your investment will average out over a period of time.
You will end up buying some units at a high cost and some units a lower price. Over time, your
chances of making a profit are much higher when compared to an one-time investment.

Stopping your SIP now is bad strategy

Yet, tens of thousands are making this costly mistake.
Tens of thousands of investors, Reserve Bank of India data show, are making a costly mistake. This is
to stop their Systematic Investment Plans (SIP) in equity and balanced mutual funds when the stock
market enters a correction phase after a boom. RBI's 2008-09 annual report said around 400,000
investors had closed their mutual fund SIP accounts.
Build your own hedge fund
SIP investors like Sudhir Vishwakarma are still waiting for the current volatile stock market to stabilise
before they start their SIP investments. Vishwakarma says, "I see little scope of my investments
giving any returns in a market that is oscillating between positive and negative closing regularly."
These investors do not realise that continuing SIPs in a volatile or falling market is as important as
systematic investments when the market is in a bull phase. For, if a person invests through an SIP,
there are good chances that his investments will fall less than a lumpsum investment made at the
wrong time. When the market turns around, the investor does not miss the positive rally.
Disinvestment strategy should get more space
Financial planners say that investors are wary of putting money in equity when the markets are falling.
They usually stop all equity-related investments and some even withdraw their investments at a loss.
Obviously, these wrong beliefs are reaffirmed when investors find that SIPs underperform a one-time
investment in a rising market, which does happen. But, the flip side of this argument is that SIP
investments also decline less when markets are bearish.

LUMPSUM VERSUS SIP

Falling Market
(Feb 1, '08-Jan 31,
09)

DSPBR&
Top
100
Equity

HDFC
Top 200

Reliance
Growth

Lumpsum Investment of Rs 60,000

Terminal Value (Rs)

38,461.79 34,932.44

Return (%)

-35.90

30,910.16

-41.78

-48.48

48,657.77 47,853.34

45,310.00

Monthly SIP of Rs 5,000

Terminal Value (Rs)
Return (%)

-32.84

-35.01

-41.70

Rising Market
DSPBR Top
(Feb 1, '09-Jan 31, 10) 100 Equity

HDFC
Top 200

Reliance
Growth

Lumpsum Investment of Rs 60,000

Terminal Value (Rs)

105,099.40

Return (%)

75.71

121,693.9
126,281.07
5
103.62

111.33

81,162.58 85,965.17

90,328.81

Monthly SIP of Rs 5,000

Terminal Value (Rs)
Return (%)

70.76

88.22

104.47

Monthly SIP was done on the 1st of every month; &DSPBR: DSP Black Rock
Source: Value Research

"What investors do not realise is that lumpsum one-time investments need to be timed, and timing
the market is not possible. Nobody can predict when to enter and exit. Whereas, with an SIP, investors
can still manage better returns if they stay invested through an entire market cycle," said a financial
planner.
This method of investment is more relevant in a market situation like Thursday's. Most of us are
bullish about the long-term growth story of the country. While one can expect good returns over the
long term, experts suggest it is not going to be a smooth journey. There would be volatile periods like
the ongoing one. Investments through an SIP can ensure steady returns. This should be clear if one
understands the way an SIP functions.
One can equate SIPs to the recurring deposit. The investor can put in a small fixed amount every
month and withdraw it later. It allows the person to participate in the stock market without trying to
guess its movements.
In an SIP, the fund allots units for the investments made. This means, when the market rises, the
investor gets less units but when markets undergo a correction, he receives higher units. This way, the
investor gets to average the cost of his purchase.
Saving small sums every month for a long tenure can work wonders with investments when the
money starts compounding. A person who is saving Rs 5,000 every month for 20 years will end up
with a corpus of Rs 75.80 lakh if the average return of his investments is 15 per cent.
After the ban on entry load, banks have started taking commissions for one-time investments,
whereas SIP investments are done at no cost by some of the banks. This is an added benefit.
More India business stories
The best part is that SIP investments can start as low as Rs 500 per month. But, this does not mean
that SIP is only fit for small investors. "The benefit of SIPs is relevant to all classes of investors," said
Brijesh Dalmia, director, Dalmia Advisory Services. Even for the high net worth investor, SIPs reduce
the chance of investing at the wrong time and losing their sleep over a wrong investment decision.

The benefits of SIP do not stop here. Financial planners say regular investing also ensures financial
discipline, key to building and managing wealth over a person's lifetime. "Inculcating this habit is
essential for long-term wealth creation," Dalmia said.

SIPs losing sheen, net addition declines to 50,000 a month

Vandana

| 2010-02-10 01:20:00

Inflows into systematic investment plans (SIPs), where investors put money in mutual funds
periodically, are on a decline because of poor returns and distributors' lack of interest in serving small
investors.
According to executives at various distribution houses, net SIP additions have come down to 50,000
accounts per month from a high of 250,000 in 2007 and 2008. Also, lapsed SIPs are not being
renewed. There is no official data on SIP account details.
Keep track of these changes with your investments
"SIPs had slowed down, but we have seen the momentum come back in the last two months," said
Sundeep Sikka, chief executive, Reliance Mutual Fund.
Bajaj Capital Chief Executive Anil Chopra said the main reason for SIPs not finding favour with
distributors was that they were not finding it profitable to serve smaller customers. "The economics
does not seem to be working out. If you look at the numbers, SIPs have actually died down. For most
advisors on the offline platform, serving a small ticket size like Rs 2,000 or 3,000 per month does not
cover even petrol expenses. So, it becomes unviable."
PE investments in India double in Jan 2010
According to rough estimates, there were close to 4.2 million SIPs running at the peak of the bull run,
which has come down to 2.5-3 million. SIPs took a big hit in 2009 when adverse market conditions
played havoc with retail investors' portfolios. A lot of investors cancelled their SIPs after failing to meet
their commitments. Several distributors also blame the new commission regime for the fall.
According to Maju Nair, head of distribution at Sharekhan, banks and independent financial advisers
(IFAs), which were major contributors to SIPs, had been badly hit by the new commission regime.
"IFAs have gone out of business and are looking at other revenue streams by selling insurance
products. Bank are also not pushing for SIPs in a major way as they are getting only 50-80 basis
points."
"The cost of providing the service has become more than the money they will make. So, everybody
across the distribution spectrum is looking for a substantial size," said Nair.
The worst affected, according to experts, is the micro SIP segment, with distributors finding it difficult
to serve investors with ticket sizes as low as Rs 50 and Rs 100. Distributors said this had turned out
be a loss-making proposition for most fund houses.

However, Sikka of Reliance Mutual Fund said, "Investor confidence seems to be returning and we are
getting fresh inflows. Advisors will have to look at the life-time value of a customer and not just shortterm interests. The micro SIP is more of an entry-level strategy where we are trying to bring retail
investors at the smallest level into the fold."
More India business stories
Reliance mutual fund has a micro SIP, Reliance Common Man SIP, in which one can invest a minimum
of Rs 100 per month. Similarly, SBI has Chhota SIP and UTI has IIMPS (Invest India Micro Pension
Services).

Start young, start well

BS Research

| 2009-11-08 00:10:00

Piyush Bhurangi, 26, a software engineer in Noida, UP, is getting married in November and wishes to
have a long-term investment plan to suit a larger family. He invests Rs 1,000 each month in mutual
funds via systematic investment plans (SIPs). Currently, on a take-home salary of Rs 25,000 a month,
his expenses add up to about Rs 10,000, apart from investments. He has a term insurance plan of Rs
25 lakh, with additional death benefits (ADB), taken in September 2009. All his investments are tilted
towards equities. While that wasn't a big problem as he is young, yet diversification is crucially
necessary, as he is the only bread-earning member of his family right now.
GOALS
Car: Rs 300,000 in 3 yrs
Holiday expense: Rs 300,000 in 3 yrs
Home: Rs 20,00,000 in 9 yrs
Child's Education: Rs 15,00,000 in 20 yrs
With current investments totaling Rs 5,000 monthly, you will not be able to meet your goals. Inferring
an annualised return of 10 per cent on investments, you will need to invest Rs 9,490 more, that is, Rs
14,490 per month to achieve your current goals over the respective years.
These monthly investments, growing at the rate of 10 per cent per annum, will let you achieve your
goals. The table 'Goals' shows how.
PRIORITISING GOALS
This is a crucial aspect of your investment plan. Goals, including going for a holiday or buying a car,
are negotiable ones. Since your investment requirements will depend on the timing of withdrawals,
you may shift the flexible goals to a later date, perhaps even to the extent of a few years, depending
on priorities. Goals like buying a house and child's education are non-negotiable; therefore, these
should be on the high priority list.
Since it might be difficult for you to raise your investment to the desired level, you can progressively
increase your investment levels.
FIXING FUND MIX
It's good that you have limited the number of funds in your portfolio to seven, except that you

stopped SIPs in two, and also all of them are 4- or 5-star rated funds, except for Reliance Tax Saver,
which is rated 3-star, but the concern is about the mix of funds.
The current fund selection makes your portfolio quite aggressive. Out of seven funds, five are
aggressive or thematic funds, apart from Birla Sun Life Frontline Equity and Reliance Tax Saver.
Although you have stopped investments in Sundaram BNP Paribas Select Focus and Tata
Infrastructure, still 60 per cent (Rs 3,000) of your current monthly investment of Rs 5,000 goes into
aggressive and thematic funds. For any long-term term investor like you, it is always advisable to
have well-diversified large-cap funds as core holdings in your portfolio.
The allocation to sector funds should be limited to 10-15 per cent of the portfolio. In addition, of the
five funds you are investing in currently, three are from Reliance Mutual Fund and 60 per cent of your
current monthly instalment goes to the funds of this fund house. It is not advisable to have high
allocations in funds of a single fund family because of the possibility of a single fund house's research
teams coming to uniform investment decisions. There may be too many similarities for comfort.
Here is a tailor-made allocation for you:
ASSET ALLOCATION PROBLEM
The debt component is entirely missing in your portfolio. Depending on your risk appetite, you can
decide on your allocation to these respective asset classes.
The debt fund can also be used to rebalance your portfolio regularly -- securing gains when markets
rally and investing more when the equities are cheap to ensure safety alongside gains.
As you approach your goals, gradually shift the money allocated for these to debt, to prevent any lastminute market crashes from wiping out a goodly portion of the sum.
ADEQUATE INSURANCE
It's good that you have taken a term plan. Your insurance cover is sufficient to meet the current needs
of the family in case any unfortunate events come to pass after marriage. However, it is advisable to
have medical insurance, too, as it will be helpful in meeting any sudden expenses arising from
illnesses.
CONTINGENCY FUND
You have not mentioned any allocation to an emergency fund. There is no ideal ratio, but in case of
any urgency, one should be able to meet his or her expense for four to five months. You can keep
these funds in saving banks accounts or money market funds. You also have an option to keep these
in liquid funds, but that will not be as liquid as a savings bank account, as you get the money only
after one working day.

Let your SIPs run, despite all

Vivek Kaul / DNA MONEY

| 2008-09-16 11:24:06

SIP

The stock markets have been hurtling downward for sometime

now. Investors not so keen to see the value of their investments
fall have stopped investing in the stock market. This includes even
those who had been investing in the stock market through the
systematic investment plan (SIP) route.
But as they say, there is no pain without gain. Stopping an SIP
now goes against the entire purpose of investing through the SIP
route.

SIPs bring rupee cost averaging into play. Rupee cost averaging ensures that investors do buy lesser
number of units as stock markets go up and hence limit their exposure to the equity market. Vice
versa, when markets are not doing well, averaging ensures that investors buy more units. This brings
down the average price of a single unit of a mutual fund. When the markets are falling it's a good time
to buy.
But when prices are falling, it's psychologically difficult to buy. Vice versa, when the markets are at
peak, a lot of investors enter the market. This leads to a lot of retail investors buying when the market
peaks and selling out when it hits the bottom. An SIP ensures that you buy more when the markets
are falling and less when it's peaking
SIP is the key to reap good returns
Let us try to understand this through an example. Let us take the case of an investor who invests Rs
5,000 through the SIP route every month. He invests in the first month at a net asset value (NAV) of
Rs 10. Assuming there is no entry load (for ease of calculation) he would be allotted 500 units. Now
let us assume that there is a 10% fall and the NAV of the mutual fund scheme during the next month
is at Rs 9. At a price of Rs 9, he would be allotted 555.55 units (Rs 5,000/9). The investor now has
1055.55 units. Hence, the average price of a single unit is Rs 9.47.
The current NAV of the scheme is Rs 9. For the investor to be in profit zone again, the NAV needs to
rise by 47 paisa to Rs 9.47.
Systematic Investment Plans appear better bet
In comparison, let us consider an investor who invests Rs 10,000 at one go when the NAV of the
scheme is Rs 10. He gets 1,000 units (Rs 10,000/Rs 10) when he invests. At the current NAV of Rs 9,
the NAV in his case needs to rise by Re 1 for him to be in a profitable situation again.
Hence, when markets are falling, it makes sense for SIP investors to stay put.
More India business stories | Get the latest Sensex update
The entire concept of SIP works because markets go up and markets come down. If the markets just
kept going up, then a one-time investment in mutual fund makes more sense. But, as investors have
seen over and over again, that clearly does not happen.

SIPs: For fundamentally sound investments

2010-01-11 16:47:33

Discipline is the bridge between goals and accomplishment." - Jim Rohn, American speaker and
author.
However while investing, we often seem to forget this. Our zeal to make quick money, even at utmost
risk, leads to a lot of grief. While there are several theories of investing in the stock market, retail
investors are better off by simply investing consistently.

Most Read

Oiling your investment wheels

Among the many mantras, market timing is the most
common, where investors look to enter, book and exit quite
often. There are also diehard followers of the buy and hold
strategy. At the same time there are experts who would say
that portfolio rebalancing across asset classes such as
equity and debt is a must.
More India business stories
They believe since no one can time the markets consistently, there is no point in chasing this strategy.
Then, there are proponents of the cost averaging theory, popularly known as systematic investment
plan (SIP).
So, which is the best strategy to be followed? Let's try and answer this by looking at how each of
these strategies have fared since the start of the global financial crisis.
Have a steady start
We have taken four strategies and invested Rs 1 lakh (Rs 100,000) in each of the scenarios. The start
date for each will be September 1, 2008, when the Sensex was at 14,498.51.
We have taken this date as this month saw the collapse of Lehman Brothers, widely considered the
start of the market mania on its way downwards.

Buy-and-hold strategy (lump sum investment)

Market Timing with 50 per cent invested on 1st September 2008 , 30 per cent when the
Sensex was at 10,000 (17/10/2008) and 20 per cent when the Sensex was at 8,200
(27/10/2008).

Portfolio Rebalancing every quarter to maintain an equity allocation of 60 per cent and debt
allocation of 40 per cent (Debt generating a post-tax return of 6 per cent). We have taken
quarterly rebalancing for this analysis.

SIP of Rs 20,000 every month for five months or Rs 10,000 every month for 10 months . This
is also a buy and hold kind of strategy, except that investments are spread over a period of
time.

The results of this exercise would surprise many.

A pill for your investment woes
Here we get an absolute return of 55.61 per cent. However, it is very unlikely that a market timer
invested at 10,000 and 8,200, as there was so much pessimism going around that even very seasoned
experts missed the rally till the Sensex was back over 15,000 levels.
Most of the same experts missed it post 15,000 as well, as they believed the index was overvalued
and should correct. Not just this, a lot of smart investors sold at 12,000 and then at 10,000 and

further at 8,000 and did not get in till after election. Hence, I can confidently say that market timers
or experts would have certainly fared worse than the buy and hold buyers.
5 investment factors for 2010
This strategy started with a Rs 60,000 allocation to equity and Rs 40,000 to debt. Then, every quarter
the portfolio was rebalanced and the final value of investments at the end of December 31, 2009, was
Rs 127,000. Thus, the absolute returns are 27.47 per cent.
As on 31/12/2009, the total value of investments was Rs 174,473.45, a return of 74.47 per cent.
SIP of Rs 10,000
If one did an SIP of Rs 10,000 for 10 months, then on the last day of the year, the total value of
investments was Rs 164,169.21, a return of 64.17 per cent.
Where to invest in 2010
As you can see, SIPs score by a wide margin over the popular market timing wisdom. The only point is
that if the market goes up continuously without taking a break, then a buy-and-hold strategy or
lumpsum investment would score over most strategies, including the SIP route.
Even when markets are at record lows, lumpsum investments will score over every other strategy.
However, since the market is unlikely to move in a linear fashion all the time, rather, there would be
constant crests and troughs, it makes more sense to have a disciplined approach to investing.
More India business stories
Cost averaging is an added advantage. Remember that averaging a fundamentally bad investment will
do no good and hence SIP should be used for fundamentally sound investments only (be it stocks,
mutual funds , or gold).

with balanced funds

I want to start a Systematic Investment Plan (SIP). I wish to start by investing Rs 2,500-3,000 a
month for the next 20 years and I am open to equity funds, too.
Most Read
Please advice about some good schemes I should invest in and
how I should balance my portfolio by investing in more than one Business GamesNew
cheme.
Since you are investing for the long-term, equity should be your
chosen instrument. For a start, you invest in well-rated balanced
funds like HDFC Prudence or FT India Balanced. A balanced fund
with a 65-35 equity-debt ratio would automatically keep your
portfolio balanced. Later on, as you increase the quantum of
investment, you may add a pure equity diversified fund and debt
funds to your portfolio.
Is now a good time to invest in the ICICI Prudential Income
Opportunities Retail-G fund?

No unique ID number of your

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There is no good time or bad time. Please do not time the
market. ICICI Prudential Income Opportunities Retail-G is a new
debt fund, launched in August 2008, that primarily invests in debt securities with a maturity profile of
more than three years. The fund has done well by generating 22.02 per cent return since its launch by
investing in longer maturity papers.
But its strategy can backfire if interest rates start to go up. Being a new fund, it hasn't quite got the
opportunity to show its prowess in the rising interest rate scenario. It would be prudent at this point to
invest in some other well-rated medium-term fund.
I have been investing Rs 10,000 monthly for the past one year in the following three funds: Reliance
Growth (G), DSP Black rock TOP 100 and Birla Sun Life Frontier (shouldn't this be Frontline?) Equity.
What is your opinion on these funds.
-Joe John
Reliance Growth is a 4-star rated equity diversified fund. Well known for its consistent performance,
this fund has been able to beat its category average since 2004. While DSPBR Top 100 Equity Reg is a
5-star rated actively managed fund that has protected its investor against the downside risk. Birla Sun
Life Frontier Equity is a 4-star rated fund and has done well in falling as well as rising markets. Your
funds selection is impressive; you may remain invested in these.
Is it worth maintaining JM Emerging Leaders and JM Basic (both in the growth option) now? Any
chance of them improving in the near future?
-Pradiptamohan Basu
Predicting the future is a tough job. However, you can judge a fund based upon its past performance.
Except in 2007, this fund has underperformed its category. Since its inception in July 2005, this fund
has given a return of minus 6.82 per cent.

During the downturn in 2008, JM Basic could not beat its category average. Both these JM Financials'
funds are in bad shape. If these are part of your core holding, then you may consider better
alternatives in the same category like HDFC Top 200 or DSPBR Equity.

Go slow on themes
BS Research

| 2009-10-25 00:20:00

I have been a regular investor in mutual funds for the past 3-4 years. I have accumulated many funds
in my portfolio which were at some time or the other very good funds, but not all are rated 4- or 5stars today. Should I exit funds as soon as they go below the top ratings? I think this will mean too
much of churning in my portfolio.
I do not need the money invested in these mutual funds for another 10 years. The money in debt
funds is also to be shifted to equity funds. Additionally, I plan to invest Rs 25,000 per month via
systematic investment plans (SIP).
-P C Huddar
At the onset, let us tell you that your investment approach is spot on. As we have advocated many
times, investments in equity should be made with the long-term perspective in mind. It's good to see
that you have dedicated a 10-year time frame for your investments.
However, even with such an adequate time period, equity investments work best when the entire
portfolio is in conjunction and stable. Here are a few pointers on how a decent return-generating
portfolio is built:
Portfolio's Core: Diversified Equity Funds
These funds diversify across sectors and companies. Diversification is important to rule out overdependence on any particular sector or company.
Thematic Funds: Limited Exposure
Thematic funds are generally aggressive in nature. Since these are concentrated on one sector, they
tend to invest in small- and mid-cap companies. And such funds do well only when its sector is doing
well. While these funds help generate higher returns, most portfolios can do without them, since a
diversified equity fund will anyway have exposure to a hot sector.
Debt: Cushion for Equity
A certain debt component helps limit the portfolio volatility. The extremities of market movements will
be contained, thereby adding more stability.
Rebalancing: Maintaining the Debt-Equity Ratio
Debt component in the portfolio gives an investor a sense of security by way of regular income, while
equity provides capital appreciation. It is important to decide the allocation between the two. A single
asset class might rise or fall more than the other and disturb the decided allocation. Hence, regular
rebalancing of the portfolio must be done to achieve the maximum benefit.
Now, let us see how far you are from the ideal path.

High Allocation to Aggressive Funds:

A look at the 'Fund Categorisation' table reveals the first blockade - allocation to the
aggressive/thematic funds is close to 50 per cent, which reflects that you have a high risk appetite.
But, these funds also bring more volatility to the portfolio. This is unhealthy for long-term capital
building.
Too Many Funds: With 37 funds, your portfolio seems a mess. Three to five diversified equity funds
can very well give you all the diversification that one can need.
Duplication of Investing Style: Too many similar funds results in an overlap of investing style. For
example, two funds that you hold, Tata Infrastructure and DSPBR T.I.G.E.R., both track the same
theme and you can do with just one of them. The same can be done for the two mid-cap funds and
three opportunities funds in your portfolio.
Debt Allocation: The allocation to income funds in this portfolio is close to 20 per cent, which we think
is good enough for the time frame you have chosen. However, you should see this allocation in
conjunction to your other investments meant for a single purpose or invested for a similar time frame.
Reviewing Funds: The rating given by Value Research is not only based on the fund's standalone
performance, but also compared to other funds in the category. Hence, a fund going down in rating
does not always imply the fund's performance is going down, but also that its peers are performing
better.
Hence, churning the portfolio due to falling ratings is not advisable. One should rather monitor the
performance of these funds and exit these if they continue to perform poorly.
Coming to your second query, here are a few good funds that you can invest Rs.25,000 per month in
via SIPs.

your way to wealth, health and happiness!

2009-09-18 09:13:57
Last Updated: 2009-09-18 12:12:40

Most Read
Read any investment article and you are guaranteed to come across
the word SIP. Ask any investment advisor about the most effective
way to invest in equities and he is bound to recommend SIP. What is Bengal invites Wipro, Infosys
to set up new centres
SIP, what are its pros and cons? Is it beneficial for you? Read on to
know more about this powerful investment option for you.
What is best? SIP or lump sum

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What is SIP?

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SIP (Systematic Investment Plan) is one of the most effective ways

of investing in equity markets. In SIP, you invest a certain amount
each month into the equity mutual fund of your choice. This amount
can be as low as Rs 100. This amount is either directly debited from
your bank account or you have to issue post-dated cheques to the
fund house. The SIP amount is debited from your account on specific
dates. You can continue with SIP for any period and can modify the
SIP amount as per your wish. If your circumstances change, you can
also stop SIP without having to pay any penalty. Looking at the
flexibility offered by SIP, is it any wonder that it is the most
preferred mode of investment in equities.

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What are its advantages?

SIP has many advantages. For one, it allows you to invest the amount you are comfortable with into
the mutual fund of your choice. You need not invest the whole amount at a single shot. Also it
removes the stress of timing the market. We all know that stock market is very volatile and can
change at any moment. If the market is high, your money buys fewer units and more units when the
market is low. It allows you to average your purchasing cost. This method of investment is known as
"rupee cost averaging". Moreover SIP is very flexible mode of investment. You can increase or
decrease the amount invested, change the tenure of investment or even stop investment if you are
not satisfied with the fund's performance or your circumstance changes.
Are there disadvantages?
If you think that SIP has only pros, then you are wrong. One of its drawbacks is that it fails to deliver
in rising market. E.g. if your SIP amount is Rs 100 and the NAV is Rs 50, you will get 2 units for your
amount invested. Now in the next month if the NAV becomes Rs 100, you get just 1 unit. In the third
month, if the NAV becomes Rs 200, then you don't get any unit for that month. Secondly, in order to
effect any change in SIP, you have to stop the original SIP and start a fresh one. It usually takes
around 20-25 working days for the fund house to process your application. So you may end up
missing out on a month's installment.
I have heard about Systematic Transfer plan. What is it?
Just as SIP, mutual funds also let you avail of Systematic Transfer Plan (STP). The difference is that in
SIP, the amount is debited from your bank account, in STP, the amount is transferred from one of your
mutual fund account into a new one. While you can avoid paying entry load for SIP by opting for direct
investments, you must pay switching charges for STP. Normally you transfer money between a liquid
fund and equity fund.
4 lakh SIP accounts closed in recent months
Should I go for SIP?
Of course you should. While SIP doesn't work in rising markets, always remember markets work in
cycles. What goes up must come down. So always remember market can go down any time and
during these periods, your SIP will start yielding returns. So hang in there no matter what the market
condition is. Remember, equity investment is a long term game.
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What is best? SIP or lump sum

Srikala Bhashyam

| 2009-09-04 13:12:02

When markets are on the rise, investors face a different kind of challenge. Short-term profits become
a lot easier than long term investing strategies, but mutual fund investors have a different challenge.
For them, the choice is between SIPs and lump sum investments.
If one were to go by the last 12 months' performance, it might be tempting to go for SIP option as
those who continued with their SIPs are sitting on handsome profits. In fact, the returns for these
investors have been better than lump sum investments made two years ago. While such a situation
arises once in 6-7 years, any investor would hate to let go of any profit making opportunity. However,
lump sum investments or SIPs don't ensure profits at all times.
ULIPs: For long-term savings

For instance, a few SIPs in the last one year have managed to churn
out annualised returns in the range of 30 per cent, but the same
doesn't hold at all times. No product can ensure sustained
annualised returns of such magnitude at all times. So, the question
is what should be the product of choice in a rising market?

SIPs for long term

If you are investing in a mutual fund for long term in excess of five years, SIP can be an automatic
choice as it lets you take advantage of market volatility. History has shown that equity markets
haven't had a bull run on a continuous basis for more than 3-4 years at a stretch. So, if you are
building a corpus for education or marriage over a period of 10 years, chances are that you would
come across at least one bull run and bear run during the tenure. This would let you take advantage
of both markets though it would be more beneficial if you face boom time during maturity period.
Your guide to health insurance cover
On the other hand, a lump sum investment can be advantageous in a rising market if the tenure for
investment is less than three years. Though such a strategy is layered with risk, it offers the potential
of higher returns. Take the case of current environment. The returns from debt products like fixed
deposits are less attractive as interest rates have slipped to 6.5 per cent range for one year tenure. If
you consider the tax component, on interest income, the effective yield would come down further.
Then can one consider a complete exposure to equity at current level? The answer is 'yes' to those
who are not dependent on the corpus completely. As you would have noticed, the stock market has
been gradually coming out of the woods, in the last two quarters and despite the intermittent
corrections, the outlook looks promising at current levels.
Why you must choose the right ELSS fund
Hence, those with risk appetite can allocate their funds in favour of equity. The allocation could be in
favour of a combination of front line stocks, mid-cap funds and balanced funds when the corpus size is
higher.
As pointed out earlier, the strategy has the potential of risk but other options like debt, offers an
effective yield, which is not highly lucrative. So, if you are targeting a return of 10-15 per cent, the
current market should be able to fulfil your target even if the investment horizon is short-to-medium
term. History has shown that rising markets can be rewarding even in the short term and at current
levels, we seem to be at the beginning of an uptrend.
Make tax planning a family affair
Srikala Bhashyam is the Managing Partner of RS Consultants. She runs an investment-consulting firm
in Bangalore to provide consultancy in the areas of financial planning and media. In the last 15 years,
she has worked with top publications in different locations. The primary focus of all her columns is to
simplify the nuisances of Finance, which has attained a new look over the years. Besides being a
columnist, Srikala has also been closely associated with some of the prestigious book projects.

SIP investors in MFs hit the most by equities drop

Suresh P. Iyengar

| 2009-03-29 08:35:56

SIP

Mumbai: Contrary to general belief, investors through systematic

investment plans (SIP) in mutual fund schemes seem to have
suffered more compared with the non-SIP investment mode,
owing to erratic movements in the stock markets over the past
three years.
A SIP is a commitment to invest a certain amount every month or
quarter in a mutual fund scheme on a particular day fixed by the

Also see
fund house. The SIP can be initiated by giving post-dated cheques to
File your Tax returns online
the fund houses or through an auto-debit from your bank account.
Diminishing returns
Investments through SIP in SBI Magnum Taxgain over three years
would have diminished by 36 per cent by February as against a 21
per cent negative return for a non-SIP investor, while SIP investors
in Kotak Tax Saver have suffered a loss of 40 per cent against 22
per cent for a non-SIP investor (see table), according to Value
Research data.
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After a steep climb to 21,000 levels in early 2008, the bellwether Sensex began falling sharply in
January 2008 and crashed to 8,891 points on February 27. Though the loss incurred by a scheme may
vary according to its tenure, the erratic markets have resulted in poor returns for many SIP investors
over the past three years.
While SIP investors are bound by the commitment to invest on a particular day, a non-SIP investor can
invest any time when the market is down so that he gets more units.
Claiming that SIPs remain a good route to mutual fund investing despite such disadvantages, Mr
Lokesh Nathany, a Certified Financial Planner, said: One may ignore SIPs if you have perfected the art
of timing the market. But leave alone the retail investors, not even experts have succeeded in this
attempt.
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Investors turn wary
Hit by the poor showing, many investors for the obvious reasons are now discontinuing their
investments through SIP in a hurry.
Sudipto Roy, Business Head, Principal PNB Asset Management Company, said: People are making a
mistake by discontinuing their SIP at this juncture as they will lose the benefit of getting more units
and averaging out the cost. The euphoria to open a new SIP has faded in the last six months.
Principal PNB is holding educative programmes for investors and distributors to convince them not to
discontinue SIPs.
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Dhirendra Kumar, Chief Executive Officer, Value Research, said: Returns from SIPs in the last three to
four years horizon may be in red, but over a longer period of time investors always stand to gain. In
fact, it is the right time to start a SIP.