homepersonal finance NewsKey SIP strategies to keep in mind — what's the ideal investment horizon?

Key SIP strategies to keep in mind — what's the ideal investment horizon?

A Systematic Investment Plan (SIP) is an investment tool which allows you to invest fixed amounts at regular intervals in a mutual fund scheme. What should be the strategy while investing in it? Here's what the experts told CNBC-TV18.

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By Anshul  Aug 23, 2022 7:40:06 PM IST (Updated)

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Key SIP strategies to keep in mind — what's the ideal investment horizon?

Systematic Investment Plan (SIP) — a way of investing in mutual funds — is considered an excellent tool to create wealth over a longer period of time, especially for those who have monthly cashflows and cannot make lump sum investments. It also helps in averaging out the investments over a period of time. However, the recent market volatility may have worried investors and they might be getting second thoughts on whether to continue with their SIPs.

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CNBC-TV18.com spoke to few experts to get an answer to this.


Commenting on the same, Vinit Khandare, CEO & Founder at MyFundBazaar,

said a market correction phase does not mean a need to redeem those funds. Instead, take it as an opportunity to buy more funds at a lower price.

“While one could possibly lose money in mutual funds, making a hasty decision on seeing one’s portfolio in red isn’t exactly required, given the elections and geo-political tensions, recessions, pandemics, etc,” Khandare said.

Amar Ranu, Head, Investment Products & Advisory at Anand Rathi Shares & Stock Brokers, also has similar views.

“Stopping the SIP based on market perception or knee-jerk reaction is not the right thing to do as it will hamper the continuity towards wealth journey," Ranu said.

Moreover, research says that if an investor missed few bottom points in the market, there is a fair chance that the difference in returns while remaining invested fully and iming the market would be fairly high, thus, losing the compounding effect over a longer period, he added.

Additionally, since equity markets have been very volatile and reactive, it is prudent to stay invested through SIPs so as to capitalise on participating at all levels of market.

So, how should investors plan their SIP?

Here are factors to consider:

Allocate assets in a diversified manner

With the market not generating a very lucrative return, the investor’s fund is also likely to follow the trend and provide subdued returns. So, it’s better to allocate assets in a diversified manner, a mix of long-term, mid-term and short-term funds, according to Khandare.

The financial choices vary from investor to investor as everyone has a different risk appetites, financial goals, etc.

"However, limiting investments to only one type of fund isn’t recommended. Instead consider the risk appetite," he said.

Market fluctuation withdrawal

If you find that the fund you have invested in is low-performing for less than a year, then that could be due to market fluctuation. However, if the performance is unsatisfactory for more than 18 months, it’s recommended to start looking for a better fund, Khandare said.

"But, one should not gauge this to be the only parameter while mapping the performance of a fund — an overall analysis of companies in which the fund has invested and their prospective performance is imperative. Alternatively, a good strategy is to check

The ideal investment horizon

SIPs and investment horizon go hand in hand — the longer one stays invested in the SIP, the more promising are the returns involved. Empirically also, it takes at least five years to average out the losses and market risks and the power of compounding acting in the back, in terms of investing in an SIP.

Here are 3-year and 5-year returns of some mutual funds:

Fund name

Crisil Rating

AUM

3-year returns

5-year returns

SBI Contra Fund - Direct Plan - GrowthContra Fund

5

5,291.25

30.32%

15.87%

Aditya Birla Sun Life Tax Plan - Direct Plan - GrowthELSS

4

371.51

11.99%

8.34%

Bank of India Tax Advantage Fund - Direct Plan - GrowthELSS

4

608.62

26.59%

16.89%

HDFC Tax Saver Fund - Direct Plan - GrowthELSS

4

9,408.98

17.96%

10.05%

IDFC Tax Advantage (ELSS) Fund - Direct Plan - GrowthELSS

5

3,692.39

24.93%

15.27%

(Source: Moneycontrol)

So, what should be the minimum investment period for SIPs?

SIPs take at least five years to average out the losses and market risks, while the power of compounding act in the back empirically. Hence, one should consider SIPs with a minimum investment of five years or so, Khandare told CNBC-TV18.com.

Note To Readers

The views and investment tips expressed by investment experts on CNBCTV18.com are their own and not that of the website or its management. CNBCTV18.com advises users to check with certified experts before taking any investment decisions.

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