X

Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2018 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.


Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
Why You Need To Build A SIP-Worthy Mutual Fund Portfolio - Outside View by PersonalFN

Helping You Build Wealth With Honest Research
Since 1996. Try Now

  • MyStocks

MEMBER'S LOGINX

     
Login Failure
   
     
   
     
 
 
 
(Please do not use this option on a public machine)
 
     
 
 
 
  Sign Up | Forgot Password?  

Why You Need To Build A SIP-Worthy Mutual Fund Portfolio
Sep 15, 2017

The S&P BSE Sensex and NSE's Nifty 50 are once again near all-time highs.

Valuations have reached a tipping point.

Maybe it's time to exercise caution? But how?

Well, in such market environments, investment in mutual funds through Systematic Investment Plans (SIPs) could be a good route. Through SIPs, you can stagger your investments, and if the market does go through a correction, you will be in a situation to accumulate more units through your regular monthly or quarterly investments.

Even for those who missed the Sensex rally over the past few years, now is another opportunity.

Why do we say this?

Nearly a decade ago, the S&P BSE Sensex hit the milestone of 20,000 points for the first time. Currently, the Sensex is near the 30,000 mark. So, had you invested a lump sum in the market a decade ago, you would be sitting on paltry returns - a CAGR of 4.14%.

Had you invested in the Sensex (total return index) via a SIP on the 1st of every month, from January 2008 to September 2017, your investment would have grown at a compounded rate of 12.07%. This means, if you would have invested Rs 5,000 each month across the 117-month period, your investment of Rs 5.85 lakh would have nearly doubled to Rs 10.72 lakh, as on September 13, 2017.

Let's remember that SIP is only a mode of investing. It is equally important to pick the right set of funds.

Why so?

Consider this. Out of the 100-odd equity diversified mutual fund schemes that have been in existence for over a decade, the top 15 schemes generated a yield of over 20% in the period of our SIP analysis above. The bottom 15 schemes delivered compounded returns that were below 13%. The difference is a huge 7-percentage point in compounded returns.

The monthly investment of Rs 5,000 over the 117-month period would now be worth Rs 22.54 lakh in the best performing scheme (in hindsight), which generated a yield of 26.55%. Had you picked the worst equity scheme, the investment would be worth a mere Rs 9.20 lakh, an XIRR of 9.13%.

As seen above, picking the right mutual fund scheme is critical. You need to build a solid portfolio of funds that aims to ensure your returns are among the best, while effectively dealing with the whims and fancies of Mr Market.

So... how do you pick the best mutual funds to start a SIP?

Well, no one has a magic crystal ball that can foretell which mutual fund schemes will top the list over the next decade. However, through years of experience, one can define a process that can be used to shortlist potentially the best mutual fund schemes for the future.

Besides, putting all your eggs in one basket can prove perilous. Hence, there is a need to diversify the investment over a set of schemes that have the capability to deliver superior risk-adjusted returns and have dealt with the market conditions tactfully. After all, you require mutual fund schemes that stand by you in good times and in bad - meaning, the schemes need to manage the downside of the market well, apart from generating sound returns in a market rally.

PersonalFN understands that not all investors are equipped with wherewithal to select the best mutual fund schemes for their portfolio. One would have to spend hours analysing mutual fund schemes in order to arrive at the right list for them. Thus, PersonalFN saves you the trouble and does all the dull number-crunching work for you.

Well, the wait is finally over.

PersonalFN has launched the Exclusive Report on SIP-worthy mutual funds - The Super Investment Portfolio - For SIP Investors.

After our rigorous shortlisting process, we go a step ahead when picking funds that are SIP-worthy. Under this, PersonalFN conducts a detailed analysis on how SIPs in the top shortlisted funds have performed, across multiple market conditions and timeframes. Only those funds that successfully pass this evaluation are chosen.

Don't miss out on early bird discounts. Subscribe to the report here

PersonalFN is a Mumbai based personal finance firm offering Financial Planning and Mutual Fund Research services.

Disclaimer:

The views mentioned above are of the author only. Data and charts, if used, in the article have been sourced from available information and have not been authenticated by any statutory authority. The author and Equitymaster do not claim it to be accurate nor accept any responsibility for the same. The views constitute only the opinions and do not constitute any guidelines or recommendation on any course of action to be followed by the reader. Please read the detailed Terms of Use of the web site.

Equitymaster requests your view! Post a comment on "Why You Need To Build A SIP-Worthy Mutual Fund Portfolio". Click here!

  

More Views on News

Two Meetings That Nailed the Idea of Owning Brilliant Smallcaps Without Buying Them (The 5 Minute Wrapup)

Mar 22, 2018

Certain blue chips hold the potential of delivering returns comparable to small-cap stocks. With these stocks, you can get the best of both worlds.

What They Forgot to Tell You About Sensex at One Lakh (Profit Hunter)

Nov 29, 2017

Stocks that could beat Sensex returns in the long term.

Is this country an investment landmine? 3 "see it to believe it" signs (Vivek Kaul's Diary)

Sep 18, 2018

In today's issue, Kim Iskyan shares his insights on a country he recently visited.

The Omelette Formed By Merger Of Three Public Sector Banks, Will Be Inedible (Vivek Kaul's Diary)

Sep 18, 2018

The merger will do nothing to solve the bad loans problems of Bank of Baroda and Dena Bank.

Forget PSU Bank Mergers, Rising Interest Rates Are More Important for the Market (The 5 Minute Wrapup)

Sep 18, 2018

The RBI faces a catch-22 situation in the upcoming MPC meeting in October.

More Views on News

Most Popular

In a Crisis, if Petrol Prices Hit Rs 100, This Stock Could Be a Good Buy(The 5 Minute Wrapup)

Sep 6, 2018

The rise in the crude oil price is a major reason for the fall in the market. If crude oil prices keep on rising, what will happen to stocks?

As the Rupee Takes a Record Plunge, These Pharma Stocks Gain the Most(Sector Info)

Sep 5, 2018

Most pharma stocks were trading with gains amid rupee's fresh fall. Does that mean pharma stocks are back in vogue?

Why Arun Jaitley's Demonetisation Defence Doesn't Add Up(Vivek Kaul's Diary)

Sep 5, 2018

The tax collected has gone up a little but the question is at what cost.

The Cream of Small Cap Stocks(Profit Hunter)

Sep 5, 2018

Akin to skimming the cream off milk, one needs to learn to skim the cream off small cap stocks.

The Secret Of Mirae Asset India Equity Fund's Increasing Popularity(Outside View)

Sep 7, 2018

The prudent investment strategies followed at the fund house has helped Mirae Asset India Equity Fund earn a tag of being a consistent performer, which is in turn gaining popularity among investors.

More

Small Investments
BIG Returns

Zero To Millions Guide 2018
Get our special report, Zero To Millions
(2018 Edition) Now!
We will never sell or rent your email id.
Please read our Terms

S&P BSE SENSEX


Sep 18, 2018 (Close)

MARKET STATS