Investment through Systematic Investment Plan (SIP)

Here is a query from a Participant of my Finance for Non Finance Executives Program and my Response:

Dear Sir,

Greetings to you! Hope you are doing great.

Let me introduce myself first iam Sreenath, an employee of VA Tech Wabag Ltd. I've attended your training programme on 'Basics of Finance' hope you remember it.

This mail is just to get clarification from you regarding Mutual Fund, kindly spare few minutes of your busy schedule in this regard. I've started investing in Mutual Fund on your advice (bought Reliance Tax Saver Growth Fund with a lock in period of 3 years under SIP).

I came across the Mutual fund broker advising me to take SIP rather than in single time purchase of the units. Even you adviced us to go for SIP than the one time purchase of the units. Can you kindly explain how adopting SIP will be better than one time purchase of the units as the NAV value gets increased day by day (as i have a good amount of money as savings which i've planned to buy the MF but got struck with the advice to go with SIP). Also pl advice me the best peforming Mutual Funds as i've planned to buy immediately.

Your kind help in this regard will be highly appreciated.

--

With kind regards / Mit freundlichen Grüßen,

Sreenath T S

Engineer - Projects

VA TECH WABAG LIMITED,

Here is my Response:

From: Srikanth Msc [mailto:sreesri@mscindia.org]

Sent: 15 October 2010 13:14
To: 'Sreenath T S'
Subject: RE: Mutual Fund-Portfolio Advice

Dear Mr. Sreenath,

The strategy of investing through SIP is not a stand-alone strategy. It is (as the name implies) a systematic and disciplined approach to portfolio building. It has another advantage because you can average the cost of the units by buying more at lower prices for the same monthly commitment. Similarly a fixed amount SIP would automatically reduce the number of units you buy at high prices.

Remember SIP is beneficial only over longer periods like 3 to 5 years. In fact a SIP regularly maintained for five years is an unbeatable investment which will yield you high returns irrespective of market boom or depression.

Your investment in Tax Saver Units is good as a tax planning device. But it is not a great portfolio choice as Tax Saver funds generally give lesser returns than Non-tax saver diversified Equity Funds. But, Reliance Tax saver is a good choice.

In addition to SIP you can invest any lump sum surplus available in the following Mutual Funds:

Reliance Vision Fund-Retail Plan

Reliance Growth Fund-Retail Plan

HSBC Equity Fund

HDFC Equity Fund

Franklin India Blue Chip Fund

The list is my personal choice. Do go through the portfolio mix of these funds before investing. Always invest in growth option as this will build your portfolio.Further,, I suggest that you wait a little bit for the market to correct itself before investing. Sensex hovering above 20K is not a good time to commit your bulk funds. Hold on a little and invest when the market tumbles as it invariably will post Diwali.

Wish you all the best!

Do mail me for any other clarifications.

S. Srikanth

B.Com,MS (M.S.), F.C.A., F.C.S., C.I.S.A (USA)

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