MF SIPs are better when you invest over Stock Market Cycles

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Stock Market returns do not have linear movement

During bull markets, almost all stocks – the good, the not-so-good and the downright rubbish – tend to move up. Everyone seems to be elated because the value of their portfolios are moving up with leaps and bounds. So, you really won’t know how resilient your portfolio is until there is a strong down turn. When selling becomes relentless – like it was 2 months back almost all stocks tend to lose ground. And so the cycle repeats. A bull market is followed by a bear market, which is followed by another bull market and then again a bear market. Many a times the retail investor goes out with a loss since he / she may have entered at a previous high and then blames the market. Is there no respite from this cycle? The answer is: No, because it is the inherent nature of markets. So what should investors do?

Markets have been choppy over last 2 years – A live example:

Indian stock markets started its bull run when the NDA Government won the general elections in May 2014. There was a sense of euphoria around the new government’s reformist agenda, as investors started pumping money in the markets with a hope of turnaround. Valuations were at an all time high for major mid and small cap companies. However soon in midst of 2015, global and local factors played a spoil sport and Indian stock markets – Nifty corrected. In fact Nifty 50 touched 21 month low in Feb 2016. Again over last 2 months since the Budget was announced, markets have bounced back more than 12%.

This volatility has cause yet again many investors to enter markets at high points due to euphoria around the markets and sell stocks at losses due to fear around falling markets. Meanwhile people who have preferred the SIP route for investing tend to avoid the market volatility due to the concept of rupee cost of averaging. They follow a disciplined approach towards investing a fixed some periodically into mutual fund units in order to fulfil a financial goal.

(S)ystematic (I)nvestment (P)lan

Systematic Investment Plan or SIP, offer a simple and disciplined way to accumulate wealth over long term. Mutual Fund SIPs work pretty much like bank recurring deposits, except they generate superior risk adjusted returns compared to recurring deposits. It brings in a disciplined approach to invest regularly and can be started witha minimum of Rs.1000 per month. SIPs are perfect for people who wish to generate long term wealth without investing too much time, money and efforts into it.

Advantages of SIP Route:

Need to time the market become irrelevant, since frequent investments ensure entry in the market at both high and low levels. Thus making it favourable in volatile markets

Averages the cost of investment – which means when the markets are down one gets more mutual fund units and when markets are up one gets better returns

Professional management of funds and diversification at a very low amount, thus eliminating the need for monitoring the funds on a daily basis

Below a snapshot of the performance of some of our key schemes as on 30th April 2016

Fund Name 1 Year 3 Years 5 Years 7 years 10 Years
Birla Sun Life Frontline Equity Fund 0.58 12.96 15.35 13.75 14.08
Birla Sun Life Top 100 Fund -0.19 13.26 15.54 14.08 13.19
Birla Sun Life 95 Fund 3.85 15.33 15.68 14.13 14.24
Birla Sun Life Equity Fund 3.53 17.88 18.24 14.84 13.44
Birla Sun Life Mid Cap Fund 0.06 22.36 20.25 16.65 15.78
Birla Sun Life Dividend Yield Plus Fund -7.11 9.41 10.52 10.59 12.65
Birla Sun Life India GenNext Fund 2.41 17.35 18.85 17.95 16.58
Birla Sun Life MNC Fund -1.98 27.41 26.01 23.92 21.93
Indices 1 Year 3 Years 5 Years 7 years 10 Years
Nifty 50 Index -2.99 5.55 8.46 7.86 8.29
S&P BSE 200 Index -2.33 7.88 9.93 8.72 8.92
Nifty 500 Index -2.10 8.70 10.49 9.06 9.02
Nifty MNC Index -8.41 11.72 13.99 13.24 13.00
Nifty Free Float Midcap 100 Index 2.82 17.95 15.83 12.97 12.36

Mutual Funds have been instrumental in protecting downside and improving upside by selecting the good from the not so good and the downright rubbish. On top of this, SIPs in mutual fund have delivered better than Market performance over various periods. It is a safer way of investing for conservative equity investors through up and down market cycles. So, dear investor, you really have two choices. You either learn by being disciplined and well planned or you will learn by losing money.

The ball is in your court.

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