Monthly SIP or Yearly SIP, which is a better choice for better returns?

Understanding Systematic Investment Planning (SIP)

Simply put, a SIP gives you the provision to put a certain fixed amount in a fund of your choice for a particular/fluctuating interest rate in return as per a preset frequency. When you decide the principal amount that you want to invest in a mutual fund of your choice, it is debited from your registered bank account as per the frequency you decide (daily,weekly, fortnightly,monthly, quarterly or yearly). All you need to understand initially is that it works on the rule of compound interest and the amount you invest is compounded annually resulting into lucrative SIP returns for you.

Common types of Mutual Funds:

The following list consists of the types of Mutual Funds which can prove to be great additions to your investment portfolio and you can decide the Systematic Investment Planning strategy you want to adopt with them. Each fund has unique features and when invested wisely in, offers great SIP yearly returns.

  • i. Income Funds
  • ii. Money Market Funds
  • iii. Bond Funds
  • iv. Balanced Funds
  • v. Equity Funds
  • vi. Specialty Funds
  • vii. Exchange Traded Funds
  • viii. Index Funds
  • ix. Global/International Funds

There is another common feature that differentiates the types of mutual funds which is the market capital they hold. If a particular fund holds assets worth more than 10,000 crore in its portfolio, then it is a large cap fund while anything below 10 crores is a small cap fund. Anything with a market capital in between these two is known as a mid cap fund. You can choose to invest in either of the three depending upon the risk taking factor as well as the amount you have. Small Cap funds have maximum risk reducing with mid cap and being the least with a large cap fund. However, it is not a thumb rule and it is all a play of market when it comes to gaining great SIP returns.

Monthly SIP

A monthly SIP is the most popular medium for most investors to put their amount frequently towards a fund of their choice. The money gets auto-debited from their account on a date of their choice and the rate compounds equally giving great SIP returns. There are plenty of advantages for a monthly SIP. When you are investing small amounts of money month on month, it is much easier to track the rate of returns as compared to your SIP yearly returns. Another big advantage of a monthly SIP is that you can even choose to put your money in different funds but since it will be a much smaller amount, every 2 months, you can check how these funds are affected with market fluctuations. This is not to imply that you cannot invest in different funds when it comes to a yearly SIP, but it is much more difficult to track the market fluctuations and make a decision to shift your money into a better performing fund if you are only checking SIP yearly returns on investing annually. Here are some funds you can choose to invest in on a monthly basis:

Best Monthly SIP options in 2018

Although there are various funds that are performing really well, the following have given the best SIP returns in the considered duration. However, it is not a set thumb rule and you can choose whichever suits your needs the most:

i. SBI Blue Chip fund

SBI Blue Chip fund is perfect for people who do not want to take high risks. It is a large cap fund which in turn maintains a portfolio of stocks invested in large companies which are known for great SIP yearly returns. The large established companies are often labelled as safe investments which is why they are a great option for a new investor as the money is always at a low risk. The performance has averaged out at a 20% SIP returns in 3 years when compounded annually while the rate was lower for the duration of 5 years.

ii. Birla SL Frontline Equity Fund

Birla SL Frontline Equity Fund is a large cap fund as well which gives average SIP returns. The reason to pick this option is because it is low risk and invests in stocks of stalwarts like HDFC Bank, ICICI Bank, Infosys, ITC Ltd, Larsen and Toubro Ltd, Maruti suzuki India Ltd, Yes Bank and many more. All the aforementioned names are trusted and have hardly ever faced unretrievable losses in their stocks. The Birla SL Frontline Equity Fund SIP returns have averaged at 17.58% when compounded annually for a duration of 5 years. It is not for people who want quick returns and are looking at redeeming all the money after the lock in period is over. The average SIP yearly returns for this fund have been around 6.51%.

iii. Franklin India Prima Plus Fund

Franklin India Prima Plus Fund is a product offered by Franklin Templeton, a trusted name in the investment industry. It has outperformed it’s expected benchmark in the past 2 years and furbished great SIP yearly returns to its investors. It is more or less like a balanced fund with good returns for medium amounts of investments. The asset allocation of this particular fund is well strategized and they hold equities in large cap, mid cap as well as small cap funds making the cost averaging feature even more beneficial for the investor. It holds about 76% of equities in large cap funds whereas 22.7% goes into investment in mid cap funds as well as 1.16% is in small cap funds with remaining being in debt and cash.

iv. Mirae Asset India Equity Fund

While Mirae Asset India Equity Fund is a hidden weapon for most financial advisors, it has done one thing right and that is sticking to it’s investment mandate. It has performed consistently well over the past few years and has given its investors no reason to complain. It has a beneficial investment strategy. It buys stocks in companies which have generated increasing cash flows based on the employed capital as well as beneficial valuations. An investor with 3 year investment in this fund has gained an average of 13% interest while an investor with a holding of 5 years has gained SIP returns of 20%.

v. HDFC Mid Cap Opportunities Fund

With Deepak Parekh spearheading the asset management entity, most investors that have HDFC on their portfolio are quite happy. They do face certain fluctuations but with the best of investment strategists sitting to their rescue, the investors get great benefits of cost averaging. The best performing funds of HDFC are the ones that come with a provision of monthly SIP and are known to give great SIP yearly returns. This particular fund has given great returns over a holding of 5 years to the investor. It has given an average of 26.63% SIP returns in that duration and an approximate of 13.64% of returns for a duration of 3 years. It holds equities in the likes of Sundaram Fasteners, Cholamandalam Investment and Finance Ltd, Voltas Ltd, City Union Bank Ltd and many more.

All of the aforementioned options come with a provision of a SIP yearly returns calculator which you can access online. It lets you feed in the desired investment amount while giving you an approximate valuation of the SIP returns you will gain against the amount you invest. This is based on the past performance of the funds and also acts like a decision making factor for you before investing. Each of these funds comes with available frequency options (daily,weekly,monthly, quarterly, yearly) but we suggest that you pick the monthly one to get the best returns. You can choose to put in the amount you are ready to invest or simply put the return amount that you are expecting and the fund calculator will give you a Systematic Investment Plan for you to start investing.

Yearly SIP

Like most mutual funds, you would be able to take advantage of cost averaging even with a yearly SIP. When it comes to monthly investments, you lose money when the markets are up but you gain money when they are low. However, due to the principle of rupee cost averaging, it gets balanced and you end up earning SIP returns. It is a great option for people who cannot invest monthly or even quarterly and want to keep their money for a long term. The suggested duration for this is about 10-12 years to make full use of cost averaging and recently caught rage in the financial market with an introduction a yearly plan from the Reliance Capital Asset Management Group. Here are some funds you can choose to invest in on a yearly basis:

One major drawback of a yearly SIP for the Indian market is that there aren’t many options available currently to hold comparisons. Since it is a comparatively newer option in the market, the rates of SIP yearly returns have not been analyzed widely by financial experts.

So, which is better?

In our opinion, a monthly SIP is the best. When it comes to gaining the most profitable SIP returns, a monthly plan helps you save up a lot more. There is a particular amount that goes towards your investment portfolio for sure. Also, since it is a higher frequency, you will automatically invest a lot more without fail. It is also more convenient because it helps you spread out your investment and the whole burden does not come on to you together at once in the year. Another pointer to remember is the ease of redemption when it comes to a monthly SIP. Since, you would be putting some money aside every month, you can redeem the money tax free after the lock in period.

Since SIP involves planning, you do not have the option of investing as and when you can or you please. It is a fixed frequency which helps you build up your portfolio one by one. So, if you are under the impression, that you can simply invest all the amount when you have saved it up, then even a yearly SIP will not work for you. Also, to raise the same amount year on year is more difficult as compared to the same amount being spread out across 12 months. For example, your salary is 5 lakhs per annum and you want to invest 1 lakh a year for better returns, then it is better to invest Rs. 8333 rupees a month as it will get cut from your salary and you will still have around Rs. 34000 left with you. A lot of advisors also suggest that if you want to remain financially disciplined, then a monthly SIP is your best chance at staying regular and not falling into the lapse trap. You would continue to invest as you would see that even though the fluctuations occur, your SIP returns remain somewhat stagnant. It happens very rarely, that they go in loss and you can definitely get great SIP yearly returns when you invest wisely since you will not even miss the date as you possibly can with a yearly SIP option.

But, with a salary of roughly 43,000 a month, it is very difficult to accumulate 1 lakh a year. You need to be extremely financially disciplined to save that kind of money month on month to invest in a year. Also, psychologically, 1 lakh going together from your account when your yearly salary is 5 lakhs (hypothetically) seems like a much greater withdrawal as compared to the 8300 per month. What happens most of the times is, that you end up investing a lot less when the frequency is just once in the year. Since the amount will be less, the SIP yearly returns won’t compound as per your expectations and you will not really get the best potential SIP returns on your investment.

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