What are the advantages of making investments through SIP. Please tell me some good equity SIP and their returns?
Harish Chander Purohit
You would be surprised to see the returns that SIP investments in some good equity funds have generated. For example, a five-year SIP in Franklin Indian Prima has yielded an annualised return of 42.28 per cent. If someone has regularly invested a fixed amount every month in Franklin India Bluechip for the past 10-years, he would have earned an annualised return of 28 per cent. For full detail see table on SIP returns for the four diversified equity funds over various time periods.
A SIP is a planned investment program under which you invest a small amount of money at regular intervals. The minimum amount can be as small as Rs 500 and the frequency of investment is usually monthly or quarterly. This simple program has a number of advantages.
SIP's most important characteristic is that it does away with the need or effort to time the market. When the market is falling you may feel that it may decline further and that you should wait a while. Often stock markets make a recovery before you notice and the opportunity is lost. When markets are rising it is scary to invest money. Isn't it better that you wait for a correction and then make an investment? But if the correction doesn't come about, then even this opportunity is missed. And if markets are going nowhere, then what is the point in investing at all?
SIPs are also very convenient. Money, deducted from your account (through post-dated cheques) and invested, is money you cannot spend. And a rupee saved is a rupee earned. Even if each investment is small, over the time this can add up to a neat kitty. And the power of compounding can do wonders. In due course of time, a small amount can grow into a significant amount (see Table: SIP Returns)
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So, trying to find out which is the best time to invest can be a tough task. And that's why it is said that timing the market is futile. If one could take advantage of the ups and downs that markets encounter, it would be great. And this is where SIP fits in. By the process of regular investing one gets to invest in the highs as well as the lows, and this helps in averaging out the volatility in the market. Thus, SIP is a simple device that helps you to save and invest in a disciplined manner without having to time the market.
This article was originally published on August 17, 2004.
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