Some trends never go out of fashion. Probably because they are time tested and proven. Taking a leaf out of the age-old piggy bank concept, fund houses are now re-inventing the systematic investment plans (SIPs). The product, a great success globally so far, has proved to be a great way to accumulate wealth for retail investors with low risk appetite. The virtues of rupee cost averaging and compounding has made it a popular plan to invest with.
Drawing from this success, a few fund houses have launched daily SIPs in India. The new product plans to collect a small sum from an individual on a daily basis and invest in the market, much like depositing a penny in a piggy bank. To help you decode the new product, here’s a pocket guide on daily SIPs and things you must keep in mind before investing in it.
Drawing from this success, a few fund houses have launched daily SIPs in India. The new product plans to collect a small sum from an individual on a daily basis and invest in the market, much like depositing a penny in a piggy bank. To help you decode the new product, here’s a pocket guide on daily SIPs and things you must keep in mind before investing in it.
RIDING HIGHS & LOWS
For starters, SIPs allow one to contribute money to a fund on a uniform basis and help average out the peaks and dips in the market over the long term. The benefits of investing via SIP route get amplified in case of a daily SIP where investments are scheduled daily. “It captures the daily levels of market volatility. It not only ensures that one is invested at the highs and the lows but also makes the best out of an opportunity that could be tough to predict in advance,” feels Krishnan Sitaraman, director, fund services at Crisil.
Financial planners say the daily SIP scores over the monthly one as it provides larger benefits of rupee cost averaging. In case of a monthly SIP, you still can lose out if the markets are up on the chosen day of the month. The daily SIP, however, eliminates this flaw and lets you benefit out of equity market volatility.
The scheme, they say, can be even used as an “effective tool” for those who are looking to make a lump sum investment. “One could let market volatility play to their benefit by splitting the lump sum amount in to daily instalments over a relatively short time frame. This strategy avoids market timing and helps rupee cost averaging also,” says Mukesh Gupta, a certified financial planner and director of Wealthcare Securities.
For small time savers, the product offers a very small threshold investment level to invest in mutual funds. The regular stream of investments even passes on the benefits of compounding. Further, the product brings in an element of financial discipline. Currently, Bharti AXA Investment Managers and ING Investment Management have mutual fund schemes in the market that invest an individual’s money on a daily basis in the equities. Sahara Mutual Fund too plans to launch a similar product soon where it proposes a minimum investment of Rs 10 a day.
Financial planners say the daily SIP scores over the monthly one as it provides larger benefits of rupee cost averaging. In case of a monthly SIP, you still can lose out if the markets are up on the chosen day of the month. The daily SIP, however, eliminates this flaw and lets you benefit out of equity market volatility.
The scheme, they say, can be even used as an “effective tool” for those who are looking to make a lump sum investment. “One could let market volatility play to their benefit by splitting the lump sum amount in to daily instalments over a relatively short time frame. This strategy avoids market timing and helps rupee cost averaging also,” says Mukesh Gupta, a certified financial planner and director of Wealthcare Securities.
For small time savers, the product offers a very small threshold investment level to invest in mutual funds. The regular stream of investments even passes on the benefits of compounding. Further, the product brings in an element of financial discipline. Currently, Bharti AXA Investment Managers and ING Investment Management have mutual fund schemes in the market that invest an individual’s money on a daily basis in the equities. Sahara Mutual Fund too plans to launch a similar product soon where it proposes a minimum investment of Rs 10 a day.
LOOK BEFORE YOU LEAP
It is important for you to check if there are any incremental transaction charges to complete each investment instalment in case of daily SIPs. Usually, a fund charges 2.25% of invested amount as the ‘entry load’. However, in some cases this amount may get reduced. You should also keep in mind the contribution after taking into account the cash flows available.
Divya Baweja, partner, BMR Advisors, however, is not too smitten by the idea of daily SIPs. “It is administratively cumbersome to get in to a daily SIP, since you need to monitor this on a daily basis. At this stage, the success of daily SIP needs to be tested,” she feels.Financial planners believe you should ideally remain invested in a daily SIP at least for three years to reap dividends. “Historical evidences show probability of having negative return over a four-year period is almost negligible,” Gupta says.
Divya Baweja, partner, BMR Advisors, however, is not too smitten by the idea of daily SIPs. “It is administratively cumbersome to get in to a daily SIP, since you need to monitor this on a daily basis. At this stage, the success of daily SIP needs to be tested,” she feels.Financial planners believe you should ideally remain invested in a daily SIP at least for three years to reap dividends. “Historical evidences show probability of having negative return over a four-year period is almost negligible,” Gupta says.
STACK UP
ING Investment Management was the first fund house in India to launch this unique feature as part of their offering, Zoom Investment Pack or ZIP. Under the scheme, investors’ money was collected as a lump sum and allocated on a regular basis in the market than at one go. It requires a minimum investment of Rs 5,000 and you can choose to invest just Rs 99 per day. However, in case of Bharti AXA Mutual Fund, you are required to shell out a minimum Rs 300 per day that sums up to Rs 6,600 per month (for 22 working days).
“It operates like any other mutual fund. The money after getting in to the fund is at the prerogative of the fund manager. It is his discretion whether he wants invest the money in the market on the same day or later,” Vikaas Sachdeva, country head for business development, Bharti AXA Investment Managers, explains.
On the other hand, the Sahara daily SIP plans to raise money 365 days a year irrespective of any holidays. The fund proposes to infuse the money on a daily basis in the market. The two daily SIPs have so far proved to be successful in generating retail interest, now it remains to be seen how far a penny a day can take you.
“It operates like any other mutual fund. The money after getting in to the fund is at the prerogative of the fund manager. It is his discretion whether he wants invest the money in the market on the same day or later,” Vikaas Sachdeva, country head for business development, Bharti AXA Investment Managers, explains.
On the other hand, the Sahara daily SIP plans to raise money 365 days a year irrespective of any holidays. The fund proposes to infuse the money on a daily basis in the market. The two daily SIPs have so far proved to be successful in generating retail interest, now it remains to be seen how far a penny a day can take you.
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