The Hindu Business Line : Fund Talk

I am an NRI investing in the following mutual funds (equally) through SIP from June 2006. HDFC Equity, FranklinIndia Prima Plus, DSPML Opportunities, Reliance Vision, Magnum Contra, Sundaram Select Midcap and Reliance Growth. I will have a lumpsum amount in my hand in a few months' time. I am willing to stay in the market for a minimum of 7 years. If I invest in the above funds (equally), how many months of SIP will yield better returns — 6, 12 or 24? Even through SIP, is it better to invest on different days of the month in the above funds, rather than investing in all the funds on a particular day every month? Please advise. Can I expect a 20 per cent return in a span of 7-10 years?

Mohamed Hassan

Dubai

Your choice of funds appears quite reasonable. Being a long-term investor, you are likely to benefit from investing regularly, at least over a two-year time-frame ( 3-5 years would be even better) since SIP investing delivers the best results if continued over a complete market cycle. However, periodically review the performance of your funds and do not hesitate to switch to others if you find your scheme consistently under-performing peers.

While the very purpose of a SIP is to enable an investor to invest regularly without having to time the market, it is a good idea to fix different dates for your SIPs in different funds. This could help you benefit from the heightened short-term volatility of the kind seen in the market in recent times, with substantial changes in index values even intra-week.

Let us recall the instance of June 2006. Your SIP on June 1 would have, in all likelihood, been invested when the Sensex was at about 10070. Now, if you had another SIP dated June 14, you would have invested at a low of 8900 levels. Similarly, an SIP on June 25 would have been invested when Sensex was about 10400. If you had all your SIPs dated the 1st of the month, you may have missed the 14th low, which would have helped average your overall portfolio cost.

To give an example, if you have an SIP on HDFC Equity on the 1st of a month and an SIP on DSPML Opportunities dated 14th, it would mean that even if you had bought HDFC units at a higher cost, you would have bought DSP ML at lower levels. Thus, apart from averaging cost through an SIP, you further magnify the benefit by spreading the dates of SIPs in different schemes. But, remember, investing on different dates may benefit the portfolio as a whole and not the performance of a single fund.

Almost all funds offer about four different dates in a month (in the monthly SIPs) to choose from. However, you have to be consistent about the dates within a scheme. For example, you cannot invest on the 1st of May in Reliance Vision and then on the 14th of June in the same fund. You can do this only across funds and among the optional dates provided.

Your return expectation of 20 per cent in 7-10 years would depend on your choice of funds and the kind of market conditions in the future. Barring Sundaram BNP Paribas Select Midcap, which was launched only in 2002, all the other funds you hold have returned well over 25 per cent annually over a ten-year, or slightly shorter, time-frame. With valuations already at rather high levels, the dizzying stock market rally that we have seen over the past five years may or may not be repeated. Hence, while setting your targets, an annual return of about 15 per cent would appear reasonable to expect.

Vidya Bala

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