Are weekly SIPs a better option for MF investors?

SIP or Systematic investment plan is a diligent mode of investing in mutual funds. SIPs can be done monthly, weekly, daily, etc. Most investors go for monthly SIPs because they get monthly salaries and it is a matter of convenience when investing for the long term. Financial planners and some advisors had recommended investors to do weekly SIPs in Equity Linked Savings Schemes funds when the market was at a historic high this year. However, are weekly SIPs a good option when investing for a long term? Weekly SIP is yet another mode to stagger your investments. The staggering frequency in this case is four times a month instead of once. An investor can set the time and day of week to invest a fixed amount that gets auto-debited from the bank account. The weekly SIP option captures short-term volatility of the markets and investors don't have to time the market. When an investor does a weekly SIP, she invests small amounts to reduce the risk of catching the market at a peak. So, who should go for a weekly SIP option? “Weekly SIPs are meant to be done when there is extreme volatility and the market is correcting like March or April 2020. In such a scenario, every instalment increases your chances of averaging your costs and lowering your purchase costs”, says Shweta Rajani - Sr. Vice President & Head - Mutual Funds, AnandRathi Wealth Limited. In short, when there is uncertainty weekly SIP increases your chances of getting more number of units and therefore the rupee -cost averaging principle works out. However, weekly SIPs do not work well when the market is rallying up. Shweta Rajani explained, “In an upward moving market doing weekly SIP will only increase your costs as you are paying more and not able to buy more units. Like in October 2020, when the market was moving up, every new SIP instalment increased your cost of purchase as you put in more money and got a lesser number of units.”Investors opt for weekly staggering only when they are a little fearful about the unpredictable markets. “Whenever anyone wants to invest a huge sum of money for long term investment in an unpredictable market environment, which usually lasts for 6 to 8 months, weekly staggering that huge amount helps to tame the wave of volatile markets to invest for 7 years. This gives investors mental satisfaction.” explained Raj Talati, a financial planner and founder of ABM Investment. Talati further added that, “doing weekly SIPs for long term like 10 to 15 years does not make much of a difference in returns from monthly SIPs. Sometimes the returns from lumpsum investments have been higher if you look closely.”Here’s a look at monthly SIP, weekly SIP and lumpsum returns of some of the large cap funds for a period of 10 years.Table: 10 year returns of some large cap funds Scheme Names 10-year weekly SIP returns (%) 10-year monthly SIP returns (%) Lumpsum returns (%) Mirae Asset Large Cap Fund 17.86 16.61 17.99 Axis Bluechip Fund 17.77 16.59 17.03 Canara Rob Bluechip Equity Fund 17.68 16.34 15.70 SBI BlueChip Fund 16.28 14.94 16.30 BNP Paribas Large Cap Fund 16.12 14.69 14.83 Kotak Bluechip Fund 15.75 14.58 15.98 Note: The total number of weekly SIP instalments are 405 and the amount invested is Rs 4,05,000. The total number of monthly SIP instalments are 97 and the amount invested is Rs 97000. The SIP amount is Rs 1000. Source: ACE MFThe reason for difference in returns among weekly SIP, monthly and lumpsum as seen above is because of difference in the entry points of various SIPs. Raj Talati explains that when an investor invests a lump sum at low valuation in a growth oriented market for 10 years, the growth is steep . Equivalently, when the investor does SIP for that long, there are a series of bulls and bear phases. The last SIP amount is invested for the shortest period and the valuations don’t change much. Does this mean that for a long term, lumpsum investments are a clear winner? There is no clear answer to this. Most people don't have a huge amount to invest as a lumpsum. Most retail investors are salaried employees and hence monthly SIP is a convenient mode of investing for them. Weekly SIPs can be done if one has a steady flow of income. So, if you have to invest a big sum to invest in a short period of time, weekly SIPs are a good option to stagger.

from Economic Times https://ift.tt/2ZXQNxP