Best SIP plans for 5 year investment

With a lot of retail money flowing into SIPs of mutual funds, it is time to look at how to select SIPs and how to actually shortlist the best SIP plans for 5 year horizon.

Jan 23, 2020 10:01 IST India Infoline News Service

We have experienced the benefits of SIPs over the last many years. Clearly, SIPs have emerged as a veritable asset class and have been able to get the better of lump-sum investments. That is clear from the way the SIP collections have grown to a level of Rs8,300cr per month on a consistent basis. With a lot of retail money flowing into SIPs of mutual funds, it is time to look at how to select SIPs and how to actually shortlist the best SIP plans for 5 year horizon. We shall begin with the assumption that past returns are reflective of future potential but we shall also apply additional c
hecks and balances.

Best performing equity Mutual Fund SIPs
How have w
e gone about ranking the SIP plan for 5 years? To begin with we have only considered equity plans in our listing and we restricted to regular plans to avoid the impact of TER on returns. The ranking of the funds has been done based on 10 year returns.

Fund Name 3-Year SIP Returns (%) 5-Year SIP Returns (%) 10-Year SIP Returns (%)
SBI Small Cap Fund (Regular) 5.71% 11.33% 20.05%
Canara Robeco Emerging Fund (Regular) 6.36% 10.52% 18.47%
Axis Long Term Equity Fund (Regular) 12.66% 12.55% 17.19%
Principal Emerging Bluechip Fund (Regular) 5.07% 9.59% 16.45%
Kotak Emerging Equities Fund (Regular) 6.54% 9.73% 16.16%
INVESCO India Financial Services Fund (Regular) 14.61% 16.03% 16.02%
SBI Focused Equity Fund (Regular) 12.40% 12.94% 15.91%
Franklin Build India Fund (Regular) 4.66% 8.07% 15.59%
L&T Midcap Fund (Regular) 1.65% 7.86% 15.55%
Mirae Asset Large Cap Fund (Regular) 10.46% 12.47% 15.40%
DSP Mid Cap Fund (Regular) 6.52% 9.91% 15.40%
Invesco India Mid Cap Fund (Regular) 6.11% 8.67% 15.30%

Data Source: Value Research

The best performing SIP plans do not automatically become your top choice but, you need to apply further levels of filtering. That is why we have considered a total of 12 top performing equity funds SIPs so that you can be shortlisted from these.

How to shortlist SIPs from among the best performers?
Clearly, the returns above are applicable to regular funds only. If you opt for a direct plan there could be an additional return advantage of around 130-150 bps per annum. But there are other criteria you need to apply before zeroing in on the SIPs.

  • SIPs work best over the long term. Historically, an equity mutual fund SIP manages to obviate the probability of negative returns once it is held for a period of over 5 years. But, it is only when the SIPs are held for a period of more than 8 years that the real benefit of SIP returns can be realized. Thus funds that have not been in existence for 10 years will not qualify in this list. The ranking of funds is on 10 year returns.
  • Progressive consistency is the key to selecting the right SIP. What do we mean by progressive consistency here? Firstly, the returns must be consistent over the 3 time frames considered viz. 3-years, 5-years and 10-years. For example, if you consider the L&T Mid Cap Fund, the annualized returns range from 1.65% to 15.50%. The problem is that this makes it too vulnerable to timing your entry into the SIP. If you look at the Axis Long Term Equity fund, the returns on the 3 year SIP and the 5 year SIP are almost the same, so there is no progression in returns with longer time period. You need a mix of consistent returns that progress with tenure.
  • The third criterion you must use to shortlist SIP funds is the size of the fund and the stability of the fund management team. This can be often become a subjective choice. What is the ideal AUM? It can be Rs1,000cr for a mid-cap fund but must be at least Rs2,000cr for a large cap fund. A stable fund management team adds more value and predictability to the SIP as you can be confident that there will be consistency in policy decisions and investment strategy.

The above 3 criteria can help you to shortlist SIPs for next 5 years with reasonable degree of accuracy. Of course, once the bells and whistles are taken care of, the power of compounding and rupee cost averaging work in your favour.


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