09 Feb 2017

RETAIL RESEARCH
SIP in equity schemes - A Ready Reckoner

SIP Return (XIRR % p .a)

Scheme name Category Latest Latest 3 Years 5 Years 7 Years 10 Years Part of HSL
NAV Corpus Recommendation
(Value) (Rs in List
Crs) Average Returns(% p.a.)
Franklin India Large Cap 494.49 9365.19 13.20 18.30 16.44 15.56
Prima Plus - (G) 15.87 yes
SBI Blue Chip Large Cap 32.08 10104.31 12.94 17.83 16.03 14.31
Fund (G) 15.28 yes
ICICI Pru Top 100 Large Cap 280.33 1530.43 13.75 16.36 14.84 13.88
Fund - (G) 14.71 yes
ICICI Pru Value Multi Cap 126.72 14918.68 13.21 21.41 19.51 20.24
Discovery Fund
(G) 18.59 yes
Birla Sun Life Multi Cap 604.48 3294.57 19.22 22.74 18.69 16.08
Equity Fund (G) 19.18 yes
SBI Magnum Multi Cap 39.10 1391.84 17.44 20.93 17.43 14.37
Multi cap Fund
(G) 17.54 yes
DSP BR Multi Cap 183.84 1326.26 18.67 20.67 17.04 15.50
Opportunities
Fund (G)
17.97 yes
Sundaram Select Mid and Small Cap 433.63 4193.12 23.61 27.67 23.03 20.99
Midcap - (G)
23.82 yes
Franklin India Mid and Small Cap 48.67 4114.08 22.08 30.14 25.97 22.56
Smaller
Companies Fund
(G) 25.19 yes
DSP BR Small Mid and Small Cap 46.96 2499.38 23.23 26.50 21.79 20.42
And MidCap
Fund (G) 22.99 yes
Canara Robeco Mid and Small Cap 72.91 1423.22 22.08 28.95 24.91 22.45
Emerging
Equities (G) 24.60 yes
L&T Midcap Mid and Small Cap 110.92 510.81 23.52 28.13 22.98 20.21
Fund (G) 23.71 yes

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Reliance Tax ELSS 52.18 5870.86 14.34 21.27 18.85 17.58

Saver (ELSS)
Fund - (G) 18.01 yes
L&T Tax ELSS 44.52 1752.80 15.28 17.77 15.24 15.02
Advantage Fund
(G) 15.83 yes
DSP BR Tax Saver ELSS 39.44 1494.41 17.90 21.14 18.08 16.57
Fund (G) 18.42 yes
Birla Sun Life Equity Sectoral 599.88 3128.48 13.16 21.57 20.53 20.94
MNC Fund - (G) 19.05 yes
Reliance Banking Equity Sectoral - Banking 209.39 2180.09 16.93 19.04 16.26 17.65
Fund - (G) 17.47 yes
Birla Sun Life Equity Sectoral - 64.44 455.21 17.88 20.75 19.28 18.07
India Gen Next Consumption
Fund (G) 19.00 yes
UTI- Equity - Sectoral - 99.43 866.45 17.41 29.78 26.55 25.32
Transportation & Transportation
Logistics Fund
(G) 24.76 yes
Scheme : Indices
Nifty 50 6.36 9.91 9.11 9.09
S&P BSE Sensex 4.82 8.88 8.33 8.50
TRI Nifty 7.59 11.23 10.40 10.35
TRI Sensex 6.26 10.50 9.94 1.32

NAV date: Feb 08, 2017

Selection Methodology

The list of all diversified equity schemes (category-wise: large cap, multi cap, mid cap, ELSS and sectoral funds) was prepared.
Further filtration was done basis a minimum track record of 10 years and corpus size of Rs 200 crores.
The average of 3 years, 5 years, 7 years and 10 years returns was arrived at.
Final list was then prepared basis the descending order of the average returns.
We have presented the final result of schemes which are recommended for SIP for each (category: large cap, multi cap, mid cap, ELSS and sectoral funds)

Benefits
Over a 3 and 5 year period mid and small cap funds have given far better returns than the index (Nifty 50, BSE Sensex).
SIP technique gives returns only in the long term as in the short-term if markets decline consistently, then returns may be lesser. It is better to stay invested for a longer period (e.g: 5 to 10 years) to obtain
the real benefits.
Multi cap and Mid Cap funds have given better returns which comes at a higher risk. Hence SIP in these categories will be more beneficial provided the risks involved are known and accepted

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What is an SIP? Systematic investment plan (SIP) is a disciplined way of investing in mutual fund schemes where an investor can make regular and equal payments at regular intervals for periods to accumulate
wealth over long run. An SIP is a planned approach towards investments and helps you inculcate the habit of saving and building wealth for the future.

What is the structure of an SIP? SIP can be termed as a regular investment scheme where a stipulated amount of money (can be Rs. 50, Rs.100, Rs. 250, Rs. 500, etc) is invested daily, weekly, monthly,
quarterly or yearly, instead of investing money in bulk. It is similar to a regular savings scheme like a recurring deposit with a bank where one can put small amounts at periodic intervals. Investing in a mutual
fund through SIP allows participation in the equity markets systematically.

What is the rationale and importance of Systematic investing? Lump sum investing or investing in one go will be suitable only when there is a high degree of certainty that the market is going to go through
a rising trend. In common, equity markets are volatile in nature and prediction is very difficult. If an investor invests a bulk amount on a day and the market declines, the investor may panic and withdraw the
amount leading to a sizeable loss. Also for most investors, one-time investment may not be feasible due to a lack of resources.

In the case of systematic investment, it is not necessary for the investor to accumulate a huge amount at one go before making an investment. He can accumulate small amounts and invest regularly. An SIP
also enables investors to start investing in equity early.

The strategy behind starting a SIP with an equity scheme is to go on investing regardless of the market conditions. Investors have to keep SIP running for a longer period and do not stop it in downturns. Else,
he will lose out a chance to make money in the long term if he stops SIP midway when the market tanks.

What are the salient features of SIP? It is needless to say that for long-term wealth creation through equity market you need discipline and long term time horizon which are inherent features of SIP. The
following features of SIP makes it fit for equity market.

Simple and disciplined approach towards investment.

Investment possible with small sum of money invested regularly to accumulate wealth.
Based on concept of Rupee Cost Averaging.
Flexibility in terms of amount or quantity based SIP.
Flexible intervals like Daily/ Weekly/ Fortnightly/ Monthly/ Yearly basis.

What are the benefits of SIP? As common investor doesnt have enough time and resources, SIP proves to be a viable option for them. Listed below are the important benefits of this instrument.

Reduces Risk because of Rupee Cost Averaging.

SIP can be started with very small amount of money.
Timing the market is not necessary.
Long term financial goal can be aligned with SIP.
Disciplined approach towards Investment helps in controlling the emotions.

How does SIP help to reach Your Financial Goal? SIP is a perfect tool for people who have a specific, future financial requirement. By investing an amount of your choice every month, you can plan for and
meet financial goals, like funds for a childs education, a marriage in the family or a comfortable post retirement life.

What is Rupee Cost Averaging? Rupee cost averaging is an approach or a benefit wherein the investor gets while investing in equity market with a fixed amount of money at regular intervals like SIP route.
This ensures that the investor can buy more units when prices are low and less when prices are high. Ideally speaking, most investors want to buy stocks when the prices are low and sell them when prices
are high. But timing the market is time consuming and risky.

Rupee-cost averaging is popular among people who invest in volatile funds. If a fund's share price fluctuates a lot, rupee-cost averaging can help reduce the average cost per share over time when you are
investing, and increase your profit when you are systematically withdrawing your money.

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A more successful investment strategy is to adopt the method called Rupee Cost Averaging. However, Rupee-cost averaging doesn't guarantee a profit or eliminate risk, and it won't protect you from a loss if
you sell shares at a market low. Before adopting this strategy, you should consider your ability to continue investing through periods of low price levels.

SIP helps in riding market volatility: In other way, we can say that the SIP helps the investor make profit from stock market volatility by automatically buying more units when prices are falling and fewer
units when prices are rising, thus lowering the average purchase price.

What are the benefits of starting early? The early birds always have an advantage over those who are off the blocks late. They manage to save a decent pile for their requirements with much less fuss. Usually,
people at young age undermine the importance of saving small sums of money and keep procrastinating, pushing the start to a later date. Besides, they often perceive investing as a cumbersome process.
This is where SIP comes in handy, a good way to save through MFs is to set aside a certain amount of ones income for them. This, besides helping one make forced savings, also gives one a financial head
start.

What is power of compounding?

Compounding is the fact that the money you make off an investment can be reinvested to make even more money than your initial investment. The money you make goes back to work to make you even
more money than before.

Say you've invested Rs.10, 000 and it makes 10% interest per year. In the first year, you make Rs.1, 000 in interest. But in the second year, you'll make Rs.1, 100 (not only does your initial investment of
Rs.10,000 accrue interest but so does the additional Rs.1,000 you made in the first year). In the tenth year, you'll make Rs. 2,358. And in the 30th year you'll make Rs.15, 864. That's all without making another
investment beyond your initial Rs.10, 000. In 30 years, the power of compounding gets you from making Rs.1, 000 per year to making Rs.15, 864 per year.

Investing via SIP over long term is advisable Why?

i. To achieve long term goals: Long-term wealth creation through equity market requires disciplined approach and long term time horizon which are inherent features of SIP. Ideally speaking, SIP is a perfect
tool for people who have a specific, future financial requirement. By investing an amount of your choice every month, you can plan for and meet the long term financial goals, like funds for a childs education,
a marriage in the family or a comfortable post-retirement life. Secondly, staying invested over longer term in the equities helps to handle the fluctuation or volatility in the value of the stocks.

ii. Little Drops of Water Make the Mighty Ocean: Even investing a smaller amount in the equity market regularly over long period can end up with a large corpus in the investors hand.

iii. Investing through SIP for longer time frame achieved better results compared to short term periods: Historical data suggests that investing through SIP for longer time frame achieved better results
compared to short term periods.

iv. The longer the time-frame, the larger are the benefits of averaging: Equity markets are volatile and move in a cycle. They go up, peak, go down and then bottom. When one cycle is finished, the next begins.
SIPs make the market volatility and cycles work in favor of an investor and help in averaging out the cost. The concept is commonly referred to as rupee cost averaging. More units are purchased when a
schemes NAV is low (during market low) and fewer units when the NAV is high (during market up). Hence, when the two cases are taken together, the cost is averaged out. The longer the time frame, the
larger are the benefits of averaging.

Why one should not stop SIP?

Many investors make the mistake of discontinuing their SIP investments when market falls. This exit could impact the portfolio returns significantly as it fails to get the opportunity to average costs. As
discussed above, more units can be purchased when a schemes NAV is low (during market low) and fewer units can be bought when the NAV is high (during market up), hence the investor can achieve
averaging the cost out.

Investments through an SIP can ensure steady returns. Ideally speaking, it is difficult to time the market. Whereas, with an SIP, investors can ride safely during market downturns and manage better returns
if they stay invested through an entire market cycle.

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SIP investors need not to worry about the fluctuations or ups and down that are seen in the equity market. You could grab better returns in the next 6 to 12 months period if you stay invested during market
falls.

SIP in ELSS:

The SIP option helps start tax planning from the beginning of the financial year. But investors have to keep in mind that every SIP installment is meant to be locked in for 3 years. Investments through
Systematic Investment Plan mode have grown firmly and given significantly higher returns over the longer term. Investors can prefer monthly or quarterly frequency to invest in ELSS schemes given the
current market condition. SIP works well across market cycles and helps to average out the cost of investment that are done in different periods.

Taxation in SIP:

The tax implication applicable to the SIP investment is as same as that of the lump sum investment in MF. The main point is that the taxation of SIPs depends on the dates of investments. In equity oriented
mutual fund schemes, under Growth option, the long term capital gain tax is exempt if the units are sold after a year of the date of purchase (as per the current law structure). In this case, to benefit out the
long term capital gain tax, every instalment should be held at least one year.

Likewise, in non-equity oriented schemes, to attain the Long Term Capital Gain Tax benefit (that is 20% with indexation), the units should be sold after 3 years from the date of allotment.

In ELSS, all the SIP instalments are locked in for three years.

There is an ideology behind selling the MF units that had invested through SIP as using the first-in-first-out (FIFO) method. That means sell the earliest units first.

Conclusion:

Over a 3 and 5 year period mid and small cap funds have given far better returns than the index (Nifty 50, BSE Sensex).
SIP technique gives returns only in the long term as in the short-term if markets decline consistently, then returns may be lesser. It is better to stay invested for a longer period (e.g: 5 to 10 years) to obtain
the real benefits.
Multi cap and Mid Cap funds have given better returns which comes at a higher risk. Hence SIP in these categories will be more beneficial provided the risks involved are known and accepted

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Senior Analyst: Prashant Mehta (prashant.mehta@hdfcsec.com)

RETAIL RESEARCH Tel: (022) 3075 3400 Fax: (022) 2496 5066 Corporate Office

HDFC securities Limited, I Think Techno Campus, Building - B, "Alpha", Office Floor 8, Near Kanjurmarg Station, Opp. Crompton Greaves, Kanjurmarg (East), Mumbai 400 042 Phone: (022) 3075 3400 Fax: (022)
2496 5066 Website: www.hdfcsec.com Email: hdfcsecretailresearch@hdfcsec.com

Disclaimer: Mutual Funds and Debt investments are subject to risk. Past performance is no guarantee for future performance this document has been prepared by HDFC Securities Limited and is meant for sole
use by the recipient and not for circulation. This document is not to be reported or copied or made available to others. It should not be considered to be taken as an offer to sell or a solicitation to buy any security.
The information contained herein is from sources believed reliable. We do not represent that it is accurate or complete and it should not be relied upon as such. We may have from time to time positions or options
on, and buy and sell securities referred to herein. We may from time to time solicit from, or perform investment banking, or other services for, any company mentioned in this document. This report is intended for
non-Institutional Clients

This report has been prepared by the Retail Research team of HDFC Securities Ltd. The views, opinions, estimates, ratings, target price, entry prices and/or other parameters mentioned in this document may or
may not match or may be contrary with those of the other Research teams (Institutional, PCG) of HDFC Securities Ltd.HDFC Securities Ltd. is a SEBI Registered Research Analyst having registration no.
INH000002475."

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