Investing in mutual fund
equity schemes through systematic investment plans (SIPs) has yielded best
returns for investors over a period of time. Buying equity scheme units through SIPs, which involves
pre-determined periodic purchases of units over a period of time, every month
in the past five years has fetched 10 per cent to 18 per cent annualised
returns.
SIPs eliminate the human bias. It encourages investments at all times, irrespective of
the market levels. Investors will pocket good gains if they invest in SIP of
funds with a good track record.
For instance, if an investor puts Rs 1,000 every month in UTI
Opportunities Fund, a star performer among all equity funds - (Rs 1,000 x 120
months = 1,20,000.), he would have been sitting on approximately Rs 2,78,657.00 today, which 15 per cent returns.
SIP investments average out market volatility by a good
measure. Also, it prevents investors from trying to time the market. It enables
small investments at regular intervals.
SIPs tend to do well
even in times of market underperformance as the (fund) pool is deployed at most
market levels, thereby averaging out unit purchases at all price points.
SIP portfolios must have
gone through the dips - buying more stocks as prices declined. Volatility also
helps SIP portfolios in a big way. Funds that have managed to withstand the
market fall have delivered better SIP returns.
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. The variance in the performance of SIP and lump-sum
(or one-time) investments is mainly due to the fact that SIP investors would
have picked up additional units during the downturn.
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