.jpg)
Synopsis : Sunil Subramaniam and Anand Radhakrishnan of Sundaram Mutual Funds highlight strategies to optimize SIP investments. Key advice includes diversifying investments, opting for monthly SIPs, and using advanced strategies like value averaging. Emphasizing core funds over sectoral funds, they also note the growing popularity of SIPs among risk-averse investors, with mutual fund investments rising significantly in recent years.
Systematic Investment Plans (SIPs) in mutual funds are known for protecting investors from market volatility and creating wealth over time. However, achieving these benefits requires navigating various complexities, such as sectoral fund exposure or underperforming small and large-cap schemes, which can result in prolonged periods of below-average returns.
Sunil Subramaniam, MD of Sundaram Mutual Funds, along with his successor Anand Radhakrishnan, provides valuable insights into the intricacies of SIPs and effective strategies to optimize them.
Diversification and Frequency of SIPs
Subramaniam, retiring this month after nearly two decades at Sundaram Mutual Funds, emphasizes the importance of diversification. "No, always diversify," he advises, against investing in a single SIP. Sundaram Mutual Funds, a Chennai-headquartered fund house with assets over Rs 72,000 crore, is a subsidiary of Sundaram Finance Limited, a respected non-bank entity in India.
When it comes to the best frequency for SIPs, Subramaniam suggests that monthly investments are optimal. "Monthly is the best because most people's incomes and rental incomes are monthly. Diversification into shorter periods than a month doesn't add much value," he explains. He also recommends spreading SIP dates throughout the month, such as on the 5th, 10th, 20th, and 25th, to make management easier than weekly SIPs.
Advanced SIP Strategies
Complementary to the frequency of SIP investments, there are strategies to enhance outcomes. Subramaniam highlights the benefits of compounding SIPs with income and value averaging. He also advises setting the average value of the previous year’s SIP as a benchmark, doubling SIPs when the value drops. "This approach helps leverage market corrections to enhance rupee cost averaging," he notes.
Subramaniam also advocates investing more in volatile market segments and less in safer elements. Anand Radhakrishnan, the incoming CEO and MD of Sundaram Mutual Fund, echoes this sentiment, emphasizing core categories. He explains that flexi-cap and multi-cap funds, which include a mix of large, mid, and small caps, are ideal for structural saving.
Sectoral vs. Core Funds
Radhakrishnan further notes that sectoral funds, which attract fewer SIPs, are typically used for trading purposes. In contrast, core funds like flexi-cap, large-cap, multi-cap, and small-cap funds are more popular for long-term investments.
Growing Popularity of SIPs
There has been an increasing trend of risk-averse investors turning to SIPs, contributing to a snowball effect. Subramaniam points out that the proportion of mutual funds relative to bank deposits has grown significantly, from 13.7% in 2010 to 27% today. This shift reflects a growing preference for mutual funds over low-yielding deposits.
