Publication: Economic Times Mumbai;
Date: Nov 25, 2009;
Section: Markets;
Page: 16
SIP investors beat equity MF peers in returns race
While Top Equity Funds Gave 16-18% In 3 Yrs, SIPs Delivered 25-28%
Shailesh Menon MUMBAI
WHOEVER said volatility is bad for equity investments? Those who invested in
mutual funds through the systematic investment plan (SIP) route have benefited
the most from fluctuating share prices over the past 2-3 years. While top
equity diversified funds have returned 16-18% in three years, SIP investors
have earned returns in the range of 25-28% (investing into the same funds)
during the same period.
Supposing an investor has invested Rs 1,000 every month (between November
23, 2006 and November 23, 2009), he would have pocketed a 31% return on his
Sundaram BNP SMILE Fund, 29% each on ICICI Prudential Discovery Fund and Birla
Sunlife Dividend Yield Fund and 28% on his HDFC Equity Fund.
The investor would have made more 'risk adjusted' money than investing
directly into stocks (Sensex three-year return being 25% on a compounded
basis). In all cases, the investor would have made more money than any high
networth individual (HNI) who had invested lumpsum into any of the above funds,
unless the HNI managed to enter at the lowest level. "SIP portfolios have
yielding better returns because of the deep-market correction in mid-2008.
Volatility
provides a perfect setting for high-return SIP investments," said Gopal
Agarwal, equities head, Mirae Asset Investment. According to fund managers,
though there will be a slight erosion in net asset value (NAV), a market crash
will not have much of an impact on the overall performance of the SIP. In fact,
investors get more units for the same amount of money in falling markets. The
units bought at lower price-levels will appreciate when the market turns
around, adding to the overall portfolio value.
Lumpsum investors can only invest at one level of the market (in this case
at 13,680 levels, Sensex as on November 23, 2006). Their investments went
through a cycle of dips and surges, but they could not buy fresh units at lower
market levels.
"The variance in the performance of SIP and lumpsum investments is mainly due
to the fact that SIP investors would have picked up additional units during the
downturn. SIPs route is ideal for small investors as it makes market
fluctuations work for them," said Jaya Prakash K, head-products, Franklin
Templeton Investments.
Though one cannot make a direct comparison of benefits (between SIP and lumpsum
MF investment), SIP is usually considered a sound investment strategy in
rangebound as well as volatile markets, as you would not be locking your
capital at one go. Performance of SIPs in the short term, however, depends on
the extent of liquidity in the market, liquid cash position (non-invested part
of the fund) and portfolio composition.
"Lumpsum investments (in MFs) look good in a constantly rising market; SIPs are
better in falling and volatile markets," said Anand Shah, head-equities, Canara
Robeco Asset Management.
"Over a longer term (10 years and more), both investment styles yield
decent return pattern for investors. For instance, if you had made two
investments at the peak level and at the trough level in a given month, the
difference in return at the end of 10 years would be hardly 1%," Mr Shah added.
It is in this context that wealth managers are asking affluent investors to
adopt value averaging strategies while making lumpsum investments. In value
averaging investment (VAI), the investor sets a target growth rate or amount
for his portfolio each month, and then adjusts the next month's contribution
according to the relative gain or shortfall made on the original asset base.
Though VAI has no historical references, returns (asset growth) could well be
very close (or a bit high) to those offered by investments through SIPs, say
experts.
With Best Regards
SHENOY INVESTMENT AND FINANCIAL
CONSULTANTS PRIVATE LIMITED
11-A, KASHI NIKETAN, 2ND ROAD,
CHEMBUR, MUMBAI - 400 071
TEL : 6797 3433 / 2521 2111
EMAIL : [email protected]
[email protected]
Dealing in Mutual Funds, General & Life Insurance Products, Post Office
Schemes, Fixed Deposits, I.P.Os., and Capital Gains Bonds
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