|Index Fund / ETF||5-year IRR on SIP||Index Returns|
|HDFC Index 50-ETF (Regular)||11.59%||8.18%|
|ICICI Pru Index Fund (Regular)||11.07%||8.18%|
|SBI ETF Nifty 50 (Regular)||13.05%||8.18%|
|Aditya Birla Index Fund (Regular)||10.71%||8.18%|
|Kotak Nifty ETF (Regular)||11.77%||8.18%|
|UTI Nifty ETF (Regular)||13.07%||8.18%|
|Nippon India Index Fund (Regular)||10.79%||8.18%|
It is evident from the above table that in terms of annualized returns, even the laggards in the group of index fund above have done much better than a lump sum investment in an index fund. Why is that so?
Understanding the power of SIPs
Before we get into selecting the best mutual funds for SIP and the best SIPs to invest in 2020, let us first look at why the SIPs are able to outperform lump sum-investments so consistently over a five year period. There are 4 reasons for the same.
- SIP does away with the need to time the market. For example, had you invested lump-sum in January 2008, you would have had to wait for 7 years to get positive returns. SIP smoothens by investing regularly.
- SIPs make the best of volatility. This is popularly called rupee cost averaging. When the prices rise, you get more value and when prices fall you get more units.
- SIPs compound wealth since with each contribution the principal amount and the return amount generate further returns. This is the power of compounding.
- SIPs are powerful because they are practical. It is hard to find lump sum money to invest for everybody. SIP synchronizes inflows and outflows and creates a steady stream of wealth creation.
Let us now look at the top 10 mutual funds for SIP to invest in 2020. The only word of cautions is that these are based on past returns and hence may not be indicative.
Best SIP funds to invest in the year 2020
How is the selection of SIP different from the selection of a lump sum investment plan in a mutual fund? Conceptually, your approach to mutual funds remains the same but when it comes to SIP, consistency matters a lot. For example, if a fund has given 4%, 28% and -3% in the last 3 years, then the fund is extremely inconsistent. In such cases, the timing of entry becomes very important and defeats the purpose of a SIP. Here are some SIPs investors can look at for year 2020.
|Fund Name||Net Assets||1-Year SIP (%)||3-Year SIP (%)||5-Year SIP (%)|
|Mirae Emerging Bluechip||Rs9,229cr||16.90%||16.90%||15.90%|
|ICICI Pru Blue-chip Equity||Rs394cr||30.60%||16.70%||14.00%|
|Birla Banking Fund||Rs1,973cr||15.60%||16.90%||13.60%|
|SBI Small Cap Fund||Rs3,035cr||9.30%||14.40%||13.60%|
|Axis Focus 25 Fund||Rs8,891cr||19.00%||18.60%||13.00%|
|Birla Gen Next Fund||Rs1345cr||15.30%||15.60%||12.70%|
|Mirae Great Consumer||Rs952cr||9.90%||18.00%||12.00%|
Data Source: AMFI
The 1 year returns and 3 year returns are not really meaningful as they are too short term. Ideally returns over 5 to 10 years give a better picture. The idea here is to look at consistency. For example, the top ranked Mirae Emerging Blue Chip is consistent across time frames but an ICICI Pru Blue-chip Equity shows huge return divergence. Also, you must set a basic threshold of Rs2000cr AUM for returns to be really measurable. You are set to go!