I want to start a systematic investment plan (SIP) in mutual fund for three to five years. Which fund should I select between ICICI Prudential Discovery Fund Growth and HDFC Premier Multi-Cap Fund Growth. ICICI Prudential Discovery Fund Growth’s three and five-year returns are very good but last six months’ performance is not good while it’s vice-versa for HDFC Premier Multi-Cap Fund Growth. Which fund is good between Reliance Equity Opportunity Retail Plan Growth and Birla Sun Life Dividend Yield Plus Growth Fund?
When an investor is beginning systematic investments, it would be better to start off with relatively more stable large-cap-oriented funds. Two of the funds in your list are multi-cap funds—that invest in all segments of the market—and two are small and mid-cap funds. While these are all good funds in general, you have better starter funds available even within the same fund houses—ICICI Prudential Dynamic, HDFC Top 200, Reliance Regular savings-equity and Birla Sunlife Frontline Equity, to name a few. Any two of these funds would make a good set of starter funds for your SIP.
Regarding choosing funds based on performance, it would be better to go with the long-term performance number as a better indicator unless there has been a fundamental change in the scheme recently (like a change of fund manager). Long-term good performance indicates a fund’s capability to manage diverse market conditions better than short-term performance (especially for a period less than a year).
I am 26 years old and earn Rs 40,000. Is this the right time to start an SIP as the markets are choppy now? What would be the right amount to start?
By design, SIPs are best equipped to handle investing in choppy markets. If the market is moving steadily up, it is easy to get in and get out at any time and make a profit. If the market is moving steadily down, it is an easy decision to stay on the sidelines and wait. It is in the choppy markets where the direction is not known that systematic investing comes in handy. With an SIP, an investor would invest periodically without worrying about whether the market is in an upswing or a downswing. Consequently, thanks to the laws of probability, it is very likely that you would neither have paid too high a price or too low a price on an average. It is also an easier method of investing since the burden of constant decision-making is removed from the investor’s shoulder.
The amount of investing is entirely up to the investor’s affordability and personal situation. You should invest as much of your savings as possible.
Srikanth Meenakshi, Founder and director, FundsIndia.com
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