October 28, 2015
After a sharp jump in stock market in 2013-14, the mutual funds saw extraordinary returns of 40-140% previous year. The investors who were invested in growth funds that time saw their wealth grow handsomely.
A lot of new investors saw the merit of SIPs in growth funds and started their SIPs after careful research and understanding. However, despite choosing the proven, consistently performing schemes, today their experience with last one year SIPs is not very encouraging, especially with SIPs in large cap funds and to an extent, balanced funds that have generated annualised returns of 4-6%. It is only midcap funds’ SIPs that have delivered an annualised return of 8-12%.
Last One Year SIP Returns Don’t Look Attractive
In fact, the SIPs that have started after January 2015, are barely positive, leave alone returns. If you are one of these investors who have not seen any returns in your new SIPs, hang on. Don’t get concerned as the schemes where you have invested might be performing well, but it may not be getting reflected in SIP investments.
To illustrate the point, I list down here 3 schemes, BNP Paribas Equity Fund, HDFC Balanced Fund and SBI Magnum Global Fund that have been doing wonderfully well but there performance is not visible in SIP investments.
SIP Investment from 20 Oct 2014 – 20 Oct 2015
| BNP Paribas Equity Fund | HDFC Balanced Fund | SBI Magnum Global Fund | |||||
|---|---|---|---|---|---|---|---|
| Date | Amount Invested | NAV | Units Allotted | NAV | Units Allotted | NAV | Units Allotted |
| 20/10/2014 | 1000 | 59.28 | 16.869 | 95.507 | 10.47 | 109.5176 | 9.131 |
| 20/11/2014 | 1000 | 62.92 | 15.893 | 102.608 | 9.746 | 118.6260 | 8.43 |
| 20/12/2014 | 1000 | 62.82 | 15.918 | 103.743 | 9.639 | 121.9377 | 8.201 |
| 20/01/2015 | 1000 | 66.48 | 15.042 | 108.481 | 9.218 | 130.5843 | 7.658 |
| 20/02/2015 | 1000 | 68.37 | 14.626 | 108.738 | 9.196 | 134.5831 | 7.43 |
| 20/03/2015 | 1000 | 69.20 | 14.451 | 108.172 | 9.245 | 135.4270 | 7.384 |
| 20/04/2015 | 1000 | 68.13 | 14.678 | 108.352 | 9.229 | 134.1806 | 7.453 |
| 20/05/2015 | 1000 | 67.49 | 14.817 | 107.603 | 9.293 | 133.0370 | 7.517 |
| 20/06/2015 | 1000 | 67.57 | 14.799 | 107.801 | 9.276 | 131.6454 | 7.596 |
| 20/07/2015 | 1000 | 71.63 | 13.961 | 109.774 | 9.11 | 138.3309 | 7.229 |
| 20/08/2015 | 1000 | 69.20 | 14.451 | 110.858 | 9.021 | 139.5776 | 7.164 |
| 20/09/2015 | 1000 | 66.31 | 15.081 | 106.937 | 9.351 | 132.9900 | 7.519 |
Summary of Performance
| BNP Paribas Equity Fund | HDFC Balanced Fund | SBI Magnum Global Fund | |
|---|---|---|---|
| SIP Amount Invested | 12,000 | 12,000 | 12,000 |
| Fund Value on 20 October 2015 | 12,270 | 12,457 | 12,649 |
| Compounded Annual Growth Rate (SIP) | 4.19% | 7.12% | 10.15% |
| Lumpsum Invested on 20 Oct 2014 | 12,000 | 12,000 | 12,000 |
| Fund Value on 20 Oct 2015 | 13,755 | 13,877 | 14,950 |
| Growth Rate (20 Oct 2014 – 20 Oct 2015) | 14.62% | 15.64% | 24.58% |
Note:
• To calculate current fund value, NAV dated 20 Oct 2015 has been considered
• Growth rate has been calculated between NAVs dated 20 Oct 2014 and 20 October 2015
As can be seem from the above table, the SIP returns in all three funds are quite less than the returns on lump sum investment over last one year period. BNP Paribas Equity fund has delivered CAGR of 4.19% in SIP whereas it has grown 14.62% in last one year. Similarly, HDFC Balanced Fund and SBI Magnum Global Fund have given 7.12% and 10.15% returns respectively in SIPs whereas they have grown 15.64% and 24.58% on annual basis.
Reason of Lower Return in SIPs
The reason of lower returns in SIP can be understood from Table 1. It shows that during certain months like Feb-Apr 2015 and Jul 2015, the SIP investments happened at higher NAVs, which was due to higher stock market levels in those months. Today, the markets are trading at much lower levels in comparison to those months, and hence, no gains have been made on SIP instalments made in those months, resulting in lower returns.
Conclusion:
However, said that, it is wonderful to see that despite markets remaining volatile and range bound over last one year, these funds have still delivered 14-24% returns. It is only a matter of time before the markets reach to similar levels as Feb-Mar 2015 or July 2015. And then, even the SIP returns in the funds shall look much better than today’s levels. It is actually a boon to the SIP investors that their current investments are happening at lower market levels, which in future shall deliver them attractive returns and shall help them to create wealth to meet their long term financial goals.
Happy Investing!
Pawan Agrawal is the founder and managing partner of Investguru. You may reach him at pawan@investguru.in .