Tips To Maximise Your Equity Mutual Fund SIP Returns In 2022


As per recent AMFI data, Mutual Fund SIP accounts stood at 4.78 in November ‘21, and the total amount collected through SIP during the same month exceeded Rs. 11,000 Crores. Impressive numbers, especially when you consider that the turbulence that marked the previous 18 months – starting with the pandemic induced crash in March ’20. 

Despite their widespread popularity, a number of first-time investors remain relatively unclear about the concept of SIP’s. Some erroneously view it as a mechanism to generate short term returns by speculating in the equity markets, whereas still others falsely consider SIPs to be free of risk. Regardless of whether you’re new to SIP’s or a seasoned investor, here are three steps you can take to maximize your SIP returns and optimize your investing experience. 

Embrace Volatility 

Equity SIP’s, by design, generate better long term returns in volatile markets. In other words, you really don’t need markets to be bullish in the long run for your SIP’s to generate inflation-beating returns for you. You do, however, require volatility – which all securities markets are bound to provide. A classic case in point would be the 2008-2013 period which witnessed poor point to point returns for the stock  

Consider a monthly SIP of Rs. 10,000 started fatefully in the bellwether Franklin India Bluechip Fund at the peak of the bull market in 2008. Five years later, the NIFTY would have delivered a point-to-point return of –5 per cent (absolute). Your SIP, however, would have grown at an impressive rate of 13% CAGR. Here’s another interesting fact, though – a SIP in Franklin India Prima Fund, a higher volatility fund by the same AMC, would have delivered an even better 16.23 per cent CAGR in the same period. Put simply – if you’ve got a long-term savings horizon spanning 7-10 years, it’s wiser to select higher volatility funds such as mid-cap funds, simply because they will tend to fall deeper than broader indices, and rise higher than broader indices. This will maximize the “rupee cost averaging” benefit associated with your SIP. Additionally, it would be wise to steer clear or sectoral funds for your SIP’s, as these funds could potentially go through extended troughs and crests, which would hamper your returns in the long run.  

Make Time your Friend 

Equity oriented SIP’s are meant for long term saving – if anybody has advised you otherwise, you’re better off ignoring it. Your SIP’s will work for you only if you remain committed to them through the inevitable vicissitudes of the equity markets. In fact, the best time horizon for SIP’s is two complete market cycles that could last anything from 8-10 years. If you’re thinking of getting into SIP’s to ‘make a quick buck’ by riding a short-term market wave, you’re bound to come away disappointed. As a general rule, any goal that’s less than three years away should ideally see zero equity SIP allocation, whereas balanced funds may be considered for goals that are 3-5 years away. 

Be cold-hearted 

Passivity is a strength when it comes to your SIP’s. As markets rise and fall, you may cringe when one of your SIP tranches get debited at a seemingly ‘high’ point of the market and groan in frustration when the market fall heavily a day or two after your monthly SIP gets debited – but fear not, it all gets averaged out in the long run. In fact, those who repeatedly try to time their investments by predicting market troughs suffer the most in the long run. Short term stock market trends are near impossible to predict, and you’re far better off allowing your SIP’s to run their course dispassionately, even through extended periods of negative returns. Shut your eyes to the ups and downs of the markets, and you’ll be pleasantly surprised with the results a few years later. Whatever you do, do not try to “time” your SIPs – that would defeat the purpose of SIP investing altogether! 

 






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