Equity investing have always been associated with high riskiness and the proverbial doom and crash in India
ANUPAM SINGHI | Fri, 16 Jun 2017-07:25am | DNA
Systematic investment plans (SIPs) were first introduced in India about 20 years ago by Franklin Templeton, a global investment firm. SIPs entail recurring disciplined investing via experienced portfolio managers. By necessitating fixed periodic (monthly, quarterly etc.) investments, it makes the timing of the markets, which can be risky, irrelevant, and at the same time, it typically provides above average market returns over a long period. Therefore, SIPs can be relatively less risky and also offer a hedge against inflation risk.
The top SIP funds have consistently given annualised returns of about 20% over the last two decades. The return from SIPs are calculated by a methodology called XIRR, which is a variant of internal rate of return (IRR). In the recent times, SIP fund managers usually tend to invest not more than 2% of the total capital available in a single stock. Portfolios are usually well diversified.
Currently, there are scores and scores of SIP funds to choose from. Different types of SIPs are available to suit an individual’s risk appetite, ROI goals, the time period of investment, and liquidity. Unlike PPF or Ulip, there are no restrictions and penalties on regular SIP payments and withdrawals. Investment can be as low as Rs 500 per month. Retail investors can look to invest in small-cap SIP funds initially, and once their capital builds up significantly, can shift to the less risky large-cap SIPs.
Equity investing have always been associated with high riskiness and the proverbial doom and crash in India. However, the trend is changing in recent times. Increased availability of information about investing, and greater digital marketing, has led to more and more individuals taking the SIP route. The number of SIP accounts has gone up by about 30% in the last 12-15 months alone. SIP monthly inflow volume now stands at about 3,000-3,500 crore, as opposed to about 1,000-1,500 crore in 2013. Retail participation is low India but is bound to increase at an accelerated rate.
Several brokerages are now waking up to the fact that higher P/E ratios are the new normal, as they are warranted by a fundamentally strong economy. Currently, the Indian stock market capitalisation to GDP ratio is approximately 98%, compared to 149% in 2007. With only about 250 Futures and Options (F&O) available out of approximately 4,200 individual securities, shorting opportunities are limited. Increased inflow SIP money could very well drive and support quality stocks in a growing economy.
The writer is COO, William O’Neil India