Home / Money / Personal Finance /  Why invest in SIPs with your Diwali gifts or bonus? These top 10 performing MFs deliver CAGR of over 20-29%

Why invest in SIPs with your Diwali gifts or bonus? These top 10 performing MFs deliver CAGR of over 20-29%

There is also a tax exemption benefit of  ₹1.5 lakh under section 80C of the Income Tax, available under SIP. (iStock)Premium
There is also a tax exemption benefit of 1.5 lakh under section 80C of the Income Tax, available under SIP. (iStock)

  • By choosing SIP, a fixed amount is deducted from your bank account on monthly basis -- which creates discipline in investments. The mere eye candy of SIP is that they do not require a hefty sum for investment, they can be opted for by anyone right from a teenager to senior citizens.

Diwali is less than 10 days away! The 5-days festival is seen as auspicious for buying gold, properties, or making investments among others. During the festival, many receive gifts and even companies announce bonuses to their employees to celebrate the occasion. Why not invest your monetary gift or bonus into Systematic Investment Plans (SIPs)? Typically, SIPs are one of the most affordable investment schemes available in the market and give the best of both equities and debt instruments. This fiscal year, amidst the volatile markets due to macroeconomic conditions, the appetite for SIPs has consistently risen. Since May, contributions in SIPs have stayed above 12,000 crore.

Investment in SIPs can be done with as low as 500 amount monthly. However, the minimum amount varies in mutual funds schemes. By choosing SIP, a fixed amount is deducted from your bank account on monthly basis -- which creates discipline in investments. You can easily enter and exit from SIP. The mere eye candy of SIP is that they do not require a hefty sum for investment, they can be opted for by anyone right from a teenager to senior citizens. There is also a tax exemption benefit of 1.5 lakh under section 80C of the Income Tax, available under SIP.

Why invest in SIPs this Diwali?

Gopal Kavalireddi, Head of Research at FYERS said, "Diwali is a festival of lights, bringing families together, and also windfall gains in the form of bonuses for the employed, and monetary gifts for the younger ones from the elderly. While spending that money on discretionary items does provide a sense of satisfaction, there is a lot more that can be done if that amount is invested appropriately. One such avenue is the systematic investment plan (SIP) of mutual funds, providing an opportunity to earn good returns for both, passive and active investors."

FYERS expert cited that of late, equity investing culture has been rising in India, with more than 10 crore active Demat accounts, most of which were opened over the last 3 years. Nifty 50, the benchmark index touched an all-time high of 18,605 in October 2021 and since then, has been going through price and time consolidation. But this didn’t deter the mutual fund or direct equity SIP investors, who continued on their investing journey.

According to the data of AMFI, more than 2.66 crore new SIPs were registered in FY22 and 1.21 crore in the first six months of FY23. Contribution in SIPs has also witnessed a rise from an average monthly contribution of 8,007 crore in FY21 to 10,381 crore in FY22 and further to a whopping 12,372 crore in the first six months of FY23.

Between April to September 2022, the contributions in SIPs stood at 74,234 crore -- which is already nearly 60% of a total contribution of 1,24,566 crore recorded in the overall FY22. In September 2022 alone, SIPs' contribution stand at 12,976 crore. Since May 2022, contributions in SIPs have stayed above 12,000 crore. In the first month of FY23 (April), the contributions were 11,863 crore.

Kavalireddi explained that the year 2022 has been volatile in stock markets due to various reasons – interest rate hikes, geopolitical conflicts, supply chain disruptions, and high inflation – being some of the prominent reasons. This resulted in the Nifty50 returning negative returns of 4.8% for the year, while the returns on the Nifty midcap index stand at a negative 3.3%, and the Nifty small cap index at a negative 17.1%.

"But, a monthly SIP in a decent equity mutual fund would have provided positive returns and safeguarded the capital – against volatility and inflation," he added.

He added, some of the top-performing systematic investment plans over the last 1-year highlight that SIPs do perform well in volatile markets.

The FYERS expert highlighted top-performing SIP plans that gave a yield of 9.2-12.9% between October 2021 to October 11, 2022. The CAGR of these top 10 performing SIPs ranges from 20.5% to 29.5%. A 10,000 SIP started on Diwali last year, in some of these schemes --- have delivered better-than-expected returns for an average investor.

Here's the list:

1. Motilal Oswal Midcap Fund: The scheme gave a yield of 12.9%, while its CAGR is at 29.5%.

2. Nippon India Consumption Fund: The scheme recorded a yield of 12.5% with a CAGR of 28.4%.

3. SBI Consumption Opp Fund: This scheme has a yield of 10.7% with a CAGR of 24.1%.

4. SBI Small Cap Fund: This scheme's yield is at 10.7% while CAGR stood at 22.4%.

5. ICICI Pru Infrastructure Fund: With a yield of 9.7%, the scheme's CAGR is around 21.7%.

6. HDFC Infrastructure Fund: The scheme has a yield of 9.6% with a CAGR of 21.4%.

7. Quant ESG Equity Fund: The scheme has a yield and CAGR of 9.5% and 21.3% respectively.

8. ICICI Pru FMCG Fund: The scheme has a yield of 9.5% with a CAGR of 21.1%.

9. Nippon India Multi Cap Fund: At a yield of 9.4%, the scheme has a CAGR of 21%.

10. Quant Quantamental Fund: This scheme has a 9.2% yield and a CAGR of 20.5%.

The CAGR of these top 10 performing SIPs ranges from 20.5% to 29.5%.
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The CAGR of these top 10 performing SIPs ranges from 20.5% to 29.5%. (FYERS citing Ace MF data)

Kavalireddi believes SIPs work well in a volatile stock market environment, building in disciplined investing, through rupee cost averaging, in an efficient manner.

He added, "The effectiveness of a SIP can be demonstrated with the example of the Motilal Oswal Midcap fund, in delivering a 12.94% return during the last 1 year, in comparison to the negative returns from most indices."

SIPs work well in a volatile stock market environment, building in disciplined investing, through rupee cost averaging, in an efficient manner.
View Full Image
SIPs work well in a volatile stock market environment, building in disciplined investing, through rupee cost averaging, in an efficient manner. (FYERS citing Ace MF data)

Lastly, he said, "A SIP has countered the vagaries of stock market movements effectively, through rupee cost averaging and delivered superlative returns. So, let’s get this Diwali started with a SIP, and make use of that bonus in an efficient manner."

Meanwhile, Satish Ramanathan - Chief Investment Officer - Equity, JM Financial Asset Management "We believe that while there are global issues which has led to this volatility, India is well positioned to continue being the fastest growth economy for several years. Our demographic dividend is yet to play out and as stability returns, we will see multiple levers of growth play out.

The 5-days Diwali festival will begin on October 22 with Dhanteras followed by Lakshmi Pujan (Main Diwali) on October 24 and end on October 26 with Bhai Dooj.

 

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint.

 

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