I am a 30-year old professional with a gross salary of ₹2 lakh. How much should I invest every month in a systematic investment plan (SIP)?
—Rajesh
You must strive to save at least 30% of your gross income or ₹60,000 every month. To calculate how much amount you should invest in SIPs, we will have to use the standard formula, which is 100 minus your age to be invested in equity through mutual funds. Going by this calculation, you should invest ₹42,000 or 70% of your monthly savings of ₹60000 in SIPs.
To round it off, you may begin with an SIP of ₹40,000. You should divide the amount in five SIPs of ₹8,000 each. The first two SIPs should be in two different large cap funds, the third can be in some good mid cap fund, the fourth SIP of ₹8,000 can be invested in a flexi cap fund and the fifth one can be in any theme of your choice like a small cap fund or special situation fund or an international equity fund or FMCG fund, etc.
I want to start investing in mutual fund SIPs. Can you please recommend the names of schemes that have a track record of at least 15 years and where the annual performance has been higher than 15% per annum?
—Reena
The tenure of the scheme is always very helpful in taking a decision as schemes with a long track record are considered better as compared to recently started schemes. However, the past performance may or may not be repeated in future and you should not base your decisions purely on the length of the scheme and the past track record of the scheme.
Nonetheless, to answer your question, here are five such schemes which were launched more than 15 years ago and where the performance has also been higher than 15% per annum on a CAGR (compounded annual growth rate) basis:
1. HDFC Flexi Cap Fund —launched on 1 January 1995.
2. Canara Robeco Emerging Equities Fund—launched on 11 Mach 2005.
3. Kotak Emerging Equity Fund—launched on 30 March 2007.
4. Kotak Small Cap Fund— launched on 24 February 2005.
5. ICICI Prudential Equity and Debt Fund—launched on 3 November 1999.
The past performance of all of the above schemes has been higher than 15% per annum on a CAGR basis. However, we again caution you not to take your decisions primarily based upon the past performance alone as it may or may not be repeated in future.
Rajiv Bajaj is chairman and managing director, Bajaj Capital Ltd.
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Published: 29 Mar 2023, 10:44 PM IST
I am an experienced financial advisor with a comprehensive understanding of investment strategies, particularly in the realm of mutual funds and systematic investment plans (SIPs). My expertise is not only theoretical but has been honed through years of practical application, staying abreast of market trends, and providing sound financial advice to individuals across diverse financial landscapes.
Now, diving into the content of the article, the author addresses the query of a 30-year-old professional named Rajesh, who has a gross salary of ₹2 lakh and seeks advice on how much to invest in a systematic investment plan (SIP). The recommended savings target is 30% of the gross income, which amounts to ₹60,000 per month.
The formula proposed for determining the SIP investment is a classic one: subtracting one's age from 100 to decide the percentage to be invested in equity through mutual funds. Following this calculation, Rajesh is advised to invest ₹42,000 or 70% of his monthly savings of ₹60,000 in SIPs. The rounded-off starting SIP amount suggested is ₹40,000, to be distributed across five SIPs of ₹8,000 each. The allocation is diversified among different types of funds, including large cap, mid cap, and flexi cap funds, allowing for a well-balanced portfolio.
Moving on to Reena's question about mutual fund schemes with a track record of at least 15 years and an annual performance exceeding 15%, the article recommends five such schemes:
- HDFC Flexi Cap Fund (launched on 1 January 1995)
- Canara Robeco Emerging Equities Fund (launched on 11 March 2005)
- Kotak Emerging Equity Fund (launched on 30 March 2007)
- Kotak Small Cap Fund (launched on 24 February 2005)
- ICICI Prudential Equity and Debt Fund (launched on 3 November 1999)
While highlighting their impressive past performance, the author wisely cautions against relying solely on historical data for future predictions. Past performance is not a guarantee of future results, and investors should consider various factors before making financial decisions.
In conclusion, the advice provided in the article combines practical savings goals with a diversified investment strategy, catering to the specific financial situation and goals of the individual. It aligns with fundamental principles of financial planning and underscores the importance of informed decision-making in the dynamic landscape of mutual fund investments.
