SIPs get ‘smarter’ to offer better returns

Systematic Investment Plans — a system to put money into mutual fund schemes regularly — is seeing variants these days. Distributors have devised ways to improve returns from equity mutual fund investments done through SIPs.

For instance, Rank MF, owned by Mumbai-based Samco Securities, said its modified SIP system can make 5.9% extra return compared to the traditional way every year. The system signals whether an investor should continue with the SIP in the same scheme, jump a SIP or double his SIP in a month. “Our study shows that for fiveyear periods over the last 30 years, an SIP done on the Sensex using this method, would have earned the investor an annualised 5.9% more compared to the traditional method, “says Omkeshwar Singh, head (mutual fund) distribution, Samco Securities.

Traditional SIPs involve investing a fixed amount of money in a mutual fund scheme at the same date every month. This is done irrespective of the level of the markets and the valuations at which the market is trading.

Some other investment portals and fund houses also offer differentiated SIPs. For instance, online portal offers a ‘value SIP’. In this system, if you invest ₹5,000 a month, and the value of that investment appreciates to ₹5,500 the next month, the system would deduct only ₹4,500 from your account. If it depreciates to ₹4,900, you invest ₹5,100. On an average, using this method, investors could have earned 1.5% more than a regular SIP, over the past five years.

In the case of Edelweiss Mutual Fund’s prepaid SIPs, investors have an option to transfer a fixed amount from either a liquid fund or bank account to an equity fund by setting up a trigger. If the Nifty falls by 1% or 2%, an investor can opt to shift a predetermined amount into an equity fund. If an investor used this prepaid SIP methodology to invest in the mid cap fund he could have earned an annualised 1.5% extra compared to a normal SIP, over a period of last 10 years.

SIP has been gaining popularity among Indian MF investors. The monthly SIP collection through equity mutual funds which was ₹1,206 crore in March 2014, jumped to ₹7,985 crore in October 2018.

Investment advisors said the differentiated SIPs are suitable only for evolved investors. “Small investors may not have the discipline to keep cash and follow a strategy where you can skip an instalment or do double in a particular month,” says Amol Joshi, founder, Plan Rupee.

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