Saturday, April 7, 2012

SIPs rescue investors in volatile markets :

Volatile markets took the zing out of equity mutual funds (MFs) last fiscal with just three diversified equity funds staying in the green. But investors who took the systematic investment (SIP) route still made money in an otherwise listless year for equities.

Top performing diversified equity, large cap and large and mid-cap funds gave absolute returns (gains in a portfolio over a specified period ) of up to 6.5% last fiscal. This only reinforces the widely-held view thatSIPs work well for investors, more so in wildly fluctuating markets.

A monthly SIP of Rs 1,000 had given returns lower than investments made during the best part of 2011, especially in the later half of the year. But the sharp market rally in 2012 allowed the portfolio to gain and end the fiscal in the green. The sensex had slumped 25% in 2011 but advanced 13% in January-March this year, the best performance among the world's top-10 markets, according to Bloomberg data.

"SIPs do very well in volatile markets. The averaging concept (of SIPs) comes into full play during market volatility ," says Anil Rego, CEO, Right Horizons, a wealth management firm.

"SIP is a good instrument (in such conditions) as it would not be possible to know exactly the best time to invest ," says Suresh Sadagopan , founder, Ladder7 Financial Advisories. Investors tend to keep away during market volatility but an automatic option such as SIP would ensure regular exposure to equities besides offering a chance to enter at lower levels, say advisors.

Though SIPs also work well in a rapidly rising market , they tend to under-perform when equities fall. "SIPs would give lower returns than indices when markets fall for extended periods ," say experts. Ultra short-term and short-term debt funds stole the show last fiscal, giving 9.2% returns trumping the fixed maturity plans that gained 9.1%. This was largely due to tight liquidity conditions, a high government borrowing programme and firming up of yields on government securities in the later half of the fiscal
Source : ET

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