SIP strategies to mitigate risks of any future political instability or external shocks

It’s no secret that systematic investment plans (SIPs) in mutual fund schemes protect investors from market volatility and create wealth over time. However, it is easier said than done. There are many complexities, such as SIP exposure to sectoral funds out of flavor, or under-performing small caps, or large caps schemes , which could lead to prolonged periods of below-average returns. 

So, who better than Sunil Subramaniam, MD of Sundaram Mutual Funds, and his successor Anand Radhakrishnan to explain the intricacies of the SIPs ?

Is investing in a single SIP better than investing in multiple schemes ?

“No, always diversify,” advises Subramaniam, who is retiring this month after working for nearly two decades at Sundaram Mutual Funds. This Chennai-headquartered fund house, with assets under management of over Rs 72,000 crore, is a fully owned subsidiary of one of India’s oldest and most respected non -bank entity , Sundaram Finance Limited. 

So, what is the best frequency for SIPs: monthly, weekly, or yearly?

Subramaniam suggests ‘monthly is the best’, because most people’s incomes are monthly, and most rental incomes are probably monthly as well. “Diversification into shorter periods than a month really doesn’t add much value. People like to do daily averaging, weekly averaging, and all, but monthly is good enough, “says Subramaniam, who previously worked at State Bank of India, American Express Bank, and Bank of America.

He also adds that ,” You can have different dates of the month for your SIPs. For example, you can start some SIPs on the 5th, some on the 10th, some on the 20th, and some on the 25th. So, you have five dates in a month where you are regularly investing. It’s all monthly, but spread across five days in the month. That’s easier to manage than doing a weekly SIP, where you are effectively buying every week.”

Complementary to the frequency of investing in SIPs, there are certain strategies that, when followed, result in a better outcome. “Compounding your SIPs along with your income always comes in handy. The concept of value averaging is another strategy that can help boost your investment game, “he advises. 

There is yet another strategy of setting the average value of your SIP of the previous year as a benchmark, “So, anytime the value of your previous 12 months is coming down, you double your SIP. Because then, what happens is the market’s correction; you are actually helping your SIP to put rupee cost averaging even more at work. So, that is constantly re-evaluating so that you top it up or dial it down,” advises Sunil.

He also mentions the benefits of investing more in the volatile end of the market and less into the safety element of the market. Building up on this, Anand Radhakrishnan, the successor of Sundaram Mutual Fund as CEO and MD, says, “I would say get the bulk of your money into the core categories.”

Radhakrishnan, who was previously with Franklin Templeton India as its Chief Investment Officer, elaborates on core categories as funds which have a good representation of large, mid, and small caps, which essentially are flexi-cap and multi-cap.

Coming to the sectors that receive the most SIP investment, Radhakrishnan says, sectoral funds don’t attract a lot of SIPs but are mainly used to get in and out of a trade. In contrast, core funds like flexi-cap, large cap, multi-cap, and small cap are used the most for structural saving. Another bit of advise for savers. 

There has been an upward trend with more risk-averse investors investing in SIPs, adding to the snowball effect. Further adding, Sunil mentions, “Mutual funds as a proportion of bank deposits in 2010 were about 13.7%; today, it is 27%.”

Here you go. Like they say, success begets success; more and more people are betting on mutual funds rather than low-yielding deposits.

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