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Thursday, November 22, 2018

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.


Mutual Fund SIP verses Lump Sum Investment – Let us YOU choose wisely..! Radha Consultancy Reviewed by S. Chitra on November 22, 2018 Rating: 5 Mutual Fund SIP verses  Lump Sum Investment  – Let us YOU choose wisely..!   by  Meenakshi sundaram Kannan,   Radh...

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