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One of the common problems in lump sum investing is that you are already invested and don’t have liquidity on hand to capitalize on opportunities that may arise from time to time. That is why, if you are looking at a long term plan then Systematic Investment Plan (SIP) approach works better. It gives the added advantage of rupee cost averaging (RCA). This would obviously apply more in the case of SIPs on equity funds.
Back to our concept of rupee cost averaging and how it helps. We already know that a lump sum investment will grow appreciably in a bull market but then the markets in reality are bullish for short periods of time and then it is volatile or directionless for long periods of time. So if you want to make a success of lump sum investing, you must buy at a long term market bottom.
But that is not everybody’s cup of tea and the best of investors struggle to get timing right. Here, SIPs bring rupee cost average advantage. In a SIP, a standard sum is allocated each month for example. So when NAV is up, you get more value and when NAV is down you get more units. This works favourably for your over longer periods of time as it reduces your cost of holding. That is rupee cost averaging
Here is a list of the best performing large cap equity funds in India across 5-year SIP returns and 10-year SIP returns. The answer is there for you to see.
| Large Cap Fund | 5-Year SIP IRR (Monthly SIP) | 10-Year SIP IRR (Monthly SIP) |
|---|---|---|
| Aditya Birla SL India GenNext Fund (G) | 22.95% | 20.63% |
| Tata Equity P/E Fund (G) | 26.86% | 20.34% |
| Reliance Growth Fund (G) | 24.01% | 18.05% |
| Quantum LT Equity Fund (G) – Direct Plan | 17.27% | 16.86% |
| SBI BlueChip Fund – Reg (G) | 19.07% | 16.86% |
| Templeton India Growth Fund (D) | 21.63% | 16.74% |
| Aditya Birla SL Top 100 Fund (G) | 18.53% | 16.69% |
| ICICI Pru Dynamic Plan (G) | 18.64% | 16.69% |
| ICICI Pru Top 100 Fund (G) | 18.43% | 16.02% |
As you can see in the above case, we have not used CAGR but IRR returns since that is a better measures in the case of SIPs, which are period investments in nature.
Here is a list of the best performing mid-cap equity funds in India across 5-year SIP returns and 10-year SIP returns. The answer is there for you to see.
| Mid/Small Cap Fund | 5-Year SIP IRR (Monthly SIP) | 10-Year SIP IRR (Monthly SIP) |
|---|---|---|
| Canara Rob Emerg Equities Fund – Reg (G) | 32.63% | 26.51% |
| Franklin India Smaller Cos Fund (G) | 31.38% | 26.09% |
| L&T Midcap Fund – Reg (G) | 33.37% | 24.70% |
| Edelweiss Mid and Small Cap Fund – Reg (G) | 30.93% | 24.29% |
| Aditya Birla SL Small & Midcap Fund (G) | 32.92% | 23.96% |
| Sundaram Select Midcap (G) | 29.10% | 23.45% |
As you can see in the above case, we have not used CAGR but IRR returns since that is a better measures in the case of SIPs, which are period investments in nature.
Here is a list of the best performing mid-cap equity funds in India across 5-year SIP returns and 10-year SIP returns. The answer is there for you to see.
| Mid/Small cap fund | 5-Year SIP IRR (Monthly SIP) | 10-Year SIP IRR (Monthly SIP) |
| Canara Rob Emerg Equities Fund – Reg (G) | 32.63% | 26.51% |
| Franklin India Smaller Cos Fund (G) | 31.38% | 26.09% |
| L&T Midcap Fund – Reg (G) | 33.37% | 24.70% |
| Edelweiss Mid and Small Cap Fund – Reg (G) | 30.93% | 24.29% |
| Aditya Birla SL Small & Midcap Fund (G) | 32.92% | 23.96% |
| Sundaram Select Midcap (G) | 29.10% | 23.45% |
As you can see in the above case, we have not used CAGR but IRR returns since that is a better measures in the case of SIPs, which are period investments in nature.
Here is a list of the best performing multi cap equity funds in India across 5-year SIP returns and 10-year SIP returns. The answer is there for you to see.
| Multi Cap Fund | 5-Year SIP IRR (Monthly SIP) | 10-Year SIP IRR (Monthly SIP) |
| SBI Emerging Business Fund – Reg (G) | 22.92% | 21.53% |
| Franklin India High Growth Cos Fund (G) | 23.52% | 20.56% |
| IDFC Premier Equity Fund – Reg (G) | 21.12% | 20.32% |
| Sundaram Rural India Fund (G) | 26.47% | 19.26% |
| HDFC Capital Builder Fund (G) | 22.91% | 19.03% |
| Principal Growth Fund (G) | 25.49% | 18.77% |
| L&T India Spl. Situations Fund – Reg (G) | 22.16% | 18.68% |
| Aditya Birla SL Advantage Fund (D) | 24.46% | 18.54% |
| Aditya Birla SL Equities Fund (G) | 23.51% | 18.41% |
| DSPBR Opportunities Fund – Reg (G) | 23.39% | 18.35% |
| SBI Magnum Multiplier Fund – Reg (D) | 22.27% | 18.17% |
| Reliance Reg Savings Fund – Equity Option (G) | 22.78% | 17.80% |
| SBI Magnum Multicap Fund – Reg (G) | 23.45% | 17.60% |
| Kotak Opportunities Fund (G) | 21.00% | 16.93% |
| Reliance Top 200 Fund (G) | 20.40% | 16.77% |
As you can see in the above case, we have not used CAGR but IRR returns since that is a better measures in the case of SIPs, which are period investments in nature.
Here is a list of the best performing Equity Linked Savings Scheme (ELSS) equity funds in India across 5-year SIP returns and 10-year SIP returns. The answer is there for you to see.
| ELSS Funds | 5-Year SIP IRR (Monthly SIP) | 10-Year SIP IRR (Monthly SIP) |
| Reliance Tax Saver (ELSS) Fund (G) | 25.69% | 21.17% |
| Tata India Tax Savings Fund – Reg (DP) | 24.28% | 19.14% |
| DSPBR Tax Saver Fund – Reg (G) | 22.93% | 18.92% |
| Invesco India Tax Plan (G) | 21.38% | 18.83% |
| Aditya Birla SL Tax Relief ’96 (ELSS U/S 80C of IT Act) (D) | 24.14% | 18.77% |
| L&T Tax Advt Fund – Reg (G) | 23.27% | 18.60% |
| Aditya Birla SL Tax Plan (D) | 23.45% | 18.53 |
As you can see in the above case, we have not used CAGR but IRR returns since that is a better measures in the case of SIPs, which are period investments in nature.
No doubt about that. You would be surprised that if you start early, then even with a smaller monthly SIP amount, you can end up with higher returns. That is the power of time in SIPs. The earlier you start, the more your principal earns returns and therefore the more your returns earn returns. That is called power of compounding. It is the time period that makes the biggest difference to your wealth and not just the amount you invest or the rate of return. The table below will explain things in detail
| Particulars | Alpha | Beta | Kappa | Omega |
| Starts SIP at age | 25 | 30 | 35 | 40 |
| Ends SIP at age | 55 | 55 | 55 | 55 |
| SIP Tenure | 30 years | 25 years | 20 years | 15 years |
| SIP Amount | Rs.5,000 | Rs.10,000 | Rs.15,000 | Rs.20,000 |
| CAGR Yield | 12.5% | 12.5% | 12.5% | 12.5% |
| Total SIP Outlay | Rs.18 lakhs | Rs.30 lakhs | Rs.36 lakhs | Rs.36 lakhs |
| SIP Value at 55 | Rs.197.42 lakh | Rs.207.53 lakh | Rs.160.43 lakh | Rs.105.88 lakhs |
| Wealth Ratio | 10.97 times | 6.92 times | 4.46 times | 2.94 times |
The above chart shows how the SIP can vastly outperform when you start early. In the above instance, Investor Alpha runs her SIP for a period of 30 years and therefore wealth ratio is 10.97 times the original investment. On the other hand, Beta is able to create a wealth ratio of just 6.92 times despite higher investment outlay. The reason is longer time period. When you do a SIP, you actually make time work in your favour.
The real advantage of SIP over lump-sum investing is that it makes time work in your favour. That is because, over time markets tend to be volatile and the benefit of rupee cost averaging makes this time factor work more in your favour by reducing your cost of holding and enhancing your return on investment.
But there is a more practical aspect to SIPs in that most people have income flows that are regular in the form of salary, wages, commissions, pay-outs etc. When you do SIP, you do not burden your finances and synchronize better with inflows. Since, you start off with your financial goals in mind and work backward you get a clear view of how much you need to invest. That also allows you to adjust and tweak your monthly budget accordingly.
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