how did intensifying sips lead to the …...table 2: comparison for aditya birla fund taking aditya...

HOW DID INTENSIFYING SIPS LEAD TO THE ECONOMIC BOOM? Keerat Singh, The Shri Ram School, Moulsari

Email: [email protected] , [email protected]

Abstract-This paper examines how the

emergence of SIPS-Systematic Investment

Programmes-in India changed the Indian

investor (as a whole) and contributed to India’s

steady Economic development. Several Private

Banking Associates were interviewed to get a

broad picture on how the Economy has changed.

Furthermore, official data from Mutual Fund

firms, AMFI and NSE was reviewed to reach a

reasonable conclusion. The result shows that

SIPS are powerful tools in the world of

investment and there lies a strong correlation

between Investment awareness and number of

Portfolios being registered. The total number of

SIP accounts in India has grown at a speed and

is parallel to the flow in interest on the product.

In the past three years, the number of SIP

accounts increased from 68 lakhs to 1.45 crore

in June 2017.There has been a major change in

that, investors used to switch to gold or fixed

deposits if they saw underperformance of equity

funds. However, investors now days, are no

longer investing in gold or fixed deposits due to

unattractive and unhealthy returns. To add to

this AMFI data shows that the Rs.23 trillion

mutual fund industry has witnessed healthy

reduction in SIP discontinuation. The data

shows that investors discontinued 36% of new

SIPs in April 2017 as against 31% in December

2017.This paper highlights various factors that

has led to this rise in Portfolios and its impact on

the Indian Economy.

Keywords: SIP, Lumpsum, Equity,

Economical, Funds

Introduction The overall development of the Economy

mainly depends on financial situation

prevailing in that country. However, the true

cause of economic growth proves to be a

major jigsaw puzzle for economists even

today. In an attempt to solve a piece of this

Jigsaw puzzle that could be attributed to SIP

accounts aiding in a rise in the average

Indian’s wealth, this paper aims to analyse

how these accounts have contributed to growth

for the Indian economy. In a Country

like India the degree of depth and efficiency in

the provision of financial services depends on

several factors, all of which are to be taken

into consideration when measuring the impact

on of SIPS on growth. Mutual Funds have

become a widely popular and real approach for

investors to contribute in financial markets in

an easy, low-cost technique, while muting risk

characteristics by distributing the investment

across different types of securities, also known

as Diversification. Furthermore, the rise of

SIPS offered a uniqueness to investors. The

concept of rupee-cost averaging offered

investors to see a steady rise in their asset

value over a period, that perhaps proved to be

satisfying; However, there are other factors

that also

come into play. The first part of this paper will

aim to showcase a rough understanding of

portfolio architecture in many Mutual Fund

Investment houses, a change in the Indian

investor, Issues faced by Investment homes

and insight from investors and fund managers

themselves. While, the second part of this

paper will dwell on the overall impact on the

Indian economy while considering other

factors as well. This paper will aim to

incorporate a Macroeconomic analysis on

these Systematic Investment Programmes and

their effects on the growing Indian Economy.

I. Existing Scenario

Everyone is not committed to long term

investments. Many people want to make quick

returns after seeing past reigns. The past is

very different from the future and people do

not understand this. The biggest problem. is

that you need to educate the client where there

will be periods of overwhelming returns where

they need to be toned won instead. You cannot

have parabolic returns, but rather return

expectations need to be brought in line with

the market. Investors also do not like

committing for long term. They believe that

they have made short returns already, so they

pull out. Fund managers focus with the goal

gif not allowing anything to change in the

portfolio. This is a major problem. People who

invest for a long term, see that their

satisfaction is quite high. But people who

make changes to their portfolio frequently or

when they want to pull out money and notional

losses come into play. This is when they pull

Keerat Singh., Int. J.Eco.Res, 2018, V9 i5, 88 – 93 ISSN:2229-6158

IJER – September – October 2018 available online @ www.ijeronline.com

88

out money and stay happy as this notional loss

plays with human psychology. It ranges to the

issue of Myopia: where the human mind only

looks at what is right ahead rather than what

lies ahead in the future. Expectations need to

be matched. Every scheme has its managed

where they can only invest into some sector.

There is sector specific, stock specific limits

on the exposure that SEBI has put into place.

This is a security check where one fund

manager cannot go overboard in one defined

sector in any particular stock. Investor’s.

money don't disappear as the structure shows

that the trust is managed by the asset

management company where the money is

being managed in the trusts name. So, money

is being allowed to the investors share. There

have been a few rare cases, but none largely of

large significance. There are the basics such as

someone forging a signature etc.

II. Architecture

The foundation of the SIPS varies in terms of

the different schemes and the different

companies that introduce them. Each scheme

is largely structured on the premise of the

advantage of complete flexibility.

Additionally, these companies advise clients to

start with

perpetual SIPS-where the end date for your

investment withdrawal is blank. This is where

Asset allocation and sub Asset allocation

comes into play. Asset allocation and sub

Asset allocation is the process of segregating

portfolios into different classes such as large

stocks, bonds, commodities and cash

investment with the goal to reduce risk of

investment through diversification.

Diversification is important as most often, it

leads to a rise market capital. This

diversification takes place across large Cap

funds, MId cap fund, and small CAP funds

according the fund managers style of

investment. Another major factor that is taken

into consideration when framing a portfolio is

Investment horizon-total length of time that an

investor expects to hold a security or a

portfolio- where a minimum horizon of at least

Five years as required to survive the volatility

of the equity market, with the aim of staying

long term to ensure stable returns. Most fund

managers aim to align investor goals with the

fund horizon.

While the architecture of a Portfolio may

seem systematic, what is even more important

to understand is how the Indian investor has

evolved over time. As of 2004, not even a 100

Cr was invested in portfolios in India. Now as

of 2018, there is more than 5000 Cr being

invested in SIPS monthly. So, what really

brought this change? One reason is that ever

since the value of Gold fell, they were giving

low returns and so were all large fixed deposits

in India. Indian investors were left with no

choice but to turn to other alternatives. AMFI

seized the opportunity and started rigorous

awareness programs. Investors in India were

introduced to the world of mutual funds. Till

this date the economy was largely dependent

on FIIs, but the Indian economy then saw a

change, a shift to a more domestic plan where

money was starting to rise year by year.

Furthermore, many other characteristics of

investors contributed to this surge in

investments. Firstly, there is a constant desire

to beat inflation because SIPS allow investors

an alternative to investments in banks that

beaten away by inflation by instead offering

the option for a long-term inflation adjusted

growth. This aids in investors having a

significantly good purchasing power, which is

what has attracted most investors in the Indian

market. Secondly, proportionate to the rise in

awareness, most investors are now more

attracted to the idea of diversification-as

mentioned before-by mitigating when

spreading investments across different asset

classes by also appealing to a larger range of

investors. This has proven to be a game

changer for the Indian market where any

middle-class man could make an investment.

The later part of this essay will dwell on how

all of these factors have contributed to

economic growth.

III. Future Scope:

Four-five years back the concept of SIP had

started, but because the markets were very

unstable there was also these phenomena of

investor sort of stopping their SIPs in between.

I think investors are becoming more

developed, more intelligent and over the last

few years we have seen that in volatile times

in fact the intensity of SIPs increasing has

taken credence, so we do expect that in the

next one year to 18 months this number of Rs

4,000 crore will exceed a USD 1 billion a

month. also sheds light to some interesting

matter where the performance of Balanced



89

funds is more consistent and positive

compared to Index funds.

CAGR - Lumpsum - Balanced Fund

1

Year

3

Years

5

Years

7

Years

10

Years

Aditya Birla SunLife

Balanced'95 Fund 25.52 12.2 17.26 13.27 11.12

CAGR - SIP - Balanced Fund

1

Year

3

Years

5

Years

7

Years

10

Years


Balanced'95 Fund 20.1 15.83 18.03 17.11 16.27

**Performance as on 1 Jan '18

Table 2: Comparison for Aditya Birla Fund

Taking Aditya Birla Sun Life Balanced’95

fund for example even though in the 1-year

benchmark the CAGR is 25.52, by the 10-year

benchmark it as at 11.2. Whereas the SIP

investment started at a 1-year benchmark of

20% CAGR and stayed relatively constant in

the following benchmarks, having its lowest

relative value in the 10-years benchmark of

16%, which is also a 4% drop attributed

perhaps to the performance of the market as a

whole. This highlights the fact that over a 10-

year time period for private funds, the SIP is

always the safer bet due to its stability and

consistency.

**Performance as on 1 Jan '18

Table 2: Comparison for all Private funds

Table 2 also shows that Private funds have a

much larger alpha or yield for SIP investments

or Lumpsum and investments than do Index

funds for either. In this case the index funds

are touching negatives as well, which in the

case of SIPS could be battled over long term.

However, as a Lumpsum investment, the

investor would have to face the burden and

consequences of the high-risk investments and

low returns.

IV. Advantage

The advantage with SIPS is that they’re

completely flexible, they advise clients to start

with perpetual SIPS. Asset allocation and sub

Asset allocation comes into play.

Diversification is important and market

capitalisation is important. This diversification

takes place across large Cap funds, MId cap

fund, and small CAP funds. According the

fund managers style of investment. Depends

on the type. Investment horizon is a major

factor where a minimum horizon of atlas 5

years as equity as an asset class is very volatile

with the goal of staying through the long term

and making good returns.

The max value is perpetual, but the

minimum is that you continue the SIP for 5

years. But if it’s a goal-based investment then

your goal needs to be aligned with the SIP.

Advantage of SIPS in mutual funds vs

other Asset classes-

The difference between a mutual fund SIP and

ULIP Sips. The biggest advantage is the cost

effectiveness. A ULIP based investment plan

comes with several costs that range from

premium allocation charges, fund management

charges, mortality charges. These charges can

range from 5-10%, whereas mutual funds have

a capping of 2.5% per annum on the atoll

expenses. In comparison to other asset classes

like PPF that gives you a fixed rate but he

returns potential is low as the fixed interest

rates are low due to government setting a fixed

rate. There lies the problem of fixed deposits

in PPFS.Therefore a mutual fund equity SIP is

better. There are also other asset classes where

you cannot have a SIP but you can take an

Emi’s and get charged monthly.

Below table describes the SIP

investment plan as per pro data and market

research carried by me through different

channel.

CAGR - Lumpsum - Balanced

Fund

1

Year

3

Years

5

Years

7

Years

10

Years


Balanced'95 Fund 25.52 12.2 17.26 13.27 11.12

HDFC Balanced

Fund 27.47 12.91 18.73 15.15 13.94

HDFC Prudence

Fund 27.56 11.83 16.6 13.14 12.31

ICICI Prudential

Balanced Advantage

Fund

18.89 10.91 14.2 13.16 9.88

Reliance Regular

Savings Fund -

Balanced

29.49 13.5 16.61 13 12.4

CAGR - SIP - Balanced Fund

1

Year

3

Years

5

Years

7

Years

10

Years


Balanced'95 Fund 20.1 15.83 18.03 17.11 16.27

HDFC Balanced

Fund 22.4 17.23 19.54 18.41 18.05

HDFC Prudence

Fund 21.88 17.43 18.63 17.18 17

ICICI Prudential

Balanced Advantage

Fund

16.41 12.87 14.3 14.73 14.34

Reliance Regular

Savings Fund -

Balanced

22.8 16.8 18.4 17.33 16.58



90

CAGR - SIP

1 Year 3 Years 5 Years 7 Years 10 Years

1000000 1134689.8 1368478.1 1338701.5 1329229.8

1149358.69 1146946.8 1395604.6 1360054.3 1300965.7

1150387.843 1147468.4 1389228.1 1357489.9 1343653.4

1206576.494 1315901.7 1716671.7 1669741.8 1692453.8

1131124.944 1179139.8 1446374.7 1473450.8 1622685.7

1161890.27 1166802.1 1484334.7 1484854.7 1760846

1167113.326 1283178.7 1762500.5 1696479 1616270.7

1138430.618 1203572.9 1585842 1618433 1796825.6

1192232.611 1224673 1865618.2 1916842.6 1843334.1

1215499.509 1323567.7 2029735 2188038.2 2500467.4

1256168.216 1333385.4 1964607.9 2194463.3 1628209.3

1206863.134 1362089.8 2011455.1 2044553.3 2107724.5

1208067.893 1349665 2017919 2004455.6 N.A

1204229.05 1301548.6 1831682 1788489.6 1864956.4

1116051.916 1175905.5 1705560.9 1836761.8 2190328.6

**Performance as on 1st Jan'18

Note: It is assumed that Total Investment amount is INR 10 Lacs

across all time period

Fig 1: CAGR – Systematic Investment Plan

The data in fig 1 shows a comparison in a

fixed investment of 10 lakhs in different funds

over different times. The calculation used to

calculate the performance/value is the

Compounded Annual Growth Rate, which

shows at the rate at which an investment gives

returns

CAGR - Lumpsum

1 Year 3 Years 5 Years 7 Years 10 Years

1287500 1277642 1778133 1722731 1708144

1299500 1302886 1836736 1770142 1644475

1301400 1303960 1822952 1764440 1740804

1402200 1648468 2533223 2471700 2558589

1265500 1369110 1946619 2024351 2391363

1322500 1343745 2028908 2050115 2723922

1332000 1581982 2632557 2533161 2376066

1279200 1419277 2249244 2354063 2811408

1377000 1462522 2855589 3042786 2924975

1417700 1664007 3208699 3674031 4569860

1486700 1683885 3068886 3689006 2404546

1402700 1741861 3169501 3339759 3579178

1404800 1716792 3183366 3246438 N.A

1398100 1619337 2782273 2745366 2977947

1236900 1362463 2509125 2857062 3786012

**Performance as on 1st Jan'18



91

Note: It is assumed that Total Investment amount is INR 10 Lacs

across all time period

Fig 2: CAGR – Lump sum

The two tables show a difference in

value/performance of the investments in Lump

sum-the method of making a onetime

investment in SIPS-in comparison to a

Systematic Investment Plan. The data is in

direct support of what this paper aims to

highlight. Taking the Franklin India Bluechip

Fund for example, it can be seen that in an SIP

plan performance for the One year and Three-

year mark are fairly similar and in

concordance to the growth rate. The

performance at the One Year and Three-Year

mark giving a return of 11,31,124.94 and

11,79,139.79 respectively, showing the

similarities in the performance of the INR 10

lakhs investment. The moment the investment

reaches a Five-Year benchmark, the returns on

the investment rise to 14,46,374.66 in

concordance to high CAGR of 15.43 in that

time period. In the Seven-year benchmark, the

CAGR drops to 14.57 and the market is not

performing too well so the returns on the

investment were 14,73,450.80. However, as

soon as the investment reaches the Ten-year

benchmark, the returns rise to 16,22,685.71

even though the CAGR is 14.24. This is due to

the concept of rupee cost averaging that SIPS

account for. Because the investors

continuously invested at times when the

economy was not doing as well, the returns at

the end of the Ten-Year benchmark show a

stable rise from the original investment. The

returns account for rises in inflation as well.

The investor has invested with discipline at

regular time periods, so at times when the

economy is not doing so well like the 10-year

benchmark, his investments are averaging out

his costs and his end returns are high. In

contrast is the Lump sum investment, where

investments are made at one date. The

advantage of a Lumpsum investment is that at

times when the market is doing well, you can

make high returns. However, that is only if the

market is doing well and there is no guarantee.

Taking Franklin India Bluechip Fund for

example over here as well, there exists that

sense of volatility with a Lumpsum

investment. In the Three-year benchmark, the

value of the 10 Lakh Investment rose to a

value of 13,69,110.05 lakhs in conjunction to a

drop in CAGR of 11.04. What is interesting to

note is that for the Lumpsum investment, does

not rise as much as expected due to the CAGR.

There lies the issue with Lumpsum

investments-there exists a sense of volatility.

Taking the 5-year benchmark for example

where the CAGR rose to 14.25 from the

previous benchmark (3 years) of 11.04.

however, the rise for this large 3% increase

was only 600,000. This is perhaps due to the

fact that even though the growth rate for the

investment was high at that point, the market

itself was not performing so well. To add to

this, the inflation needs to be considered in

Lumpsum investments as well thereby further

reducing the actual value

V. Results

Calculation Matrices

Absolute return = (current NAV - initial

NAV)/ initial NAV x 100

Simple annualized return

Some may want to annualize the return

generated when holding period is less than 12

months. Also referred to as effective annual

yield, it is extrapolating the returns but not

giving the true picture. If you need to

annualize the returns, here's the formula:

((1 + Absolute Rate of Return) ^ (365/number

of days)) - 1

Illustration: The NAV of Rs 20 may shoot to

Rs 25 in, say, 7 months, i.e., 210 days. The

absolute return in this case is 25 per cent over

7 months, i.e., 0.25

So it becomes

= ((1 + 0.25) ^ (365/210)) - 1

=47.38 per cent

Compounded annual growth rate (CAGR)

CAGR =(((ending-value/beginning-value)

^(1/number-of-years))-1*100

Illustration: Assuming you had invested Rs 1

lakh in an MF three years back at a NAV of Rs

20. Now, the NAV is Rs 40.

So it will be

= (((40/20)^(1/3))-1)*100

And on hitting enter, the result is:

=25.99%

VI. Conclusion



92

In Conclusion, as shown through the course of

this paper. There are several factors, which

contribute in making SIPS an attractive

method of investment. It is this lacking

inflation, concept of rupee cost averaging and

consistent returns that aid in making the SIP

model attractive. While other methods of

investment do have their benefits, it is the

elimination of the risk factor that makes the

SIPS a model that appeals to all financial

classes in India. This Architecture allows fund

managers to guide Investors for a period of

more than 55 years so that their profits and

losses are averaged over a period. Lastly, it is

also the customer (the investor) who has

played a major role in the success of the SIP

with regards to helping the Indian Economy

reach its boom state. A patient investor is

always the dream and with a rise in wealth

classes, there has been a rise in these investors

in India. With an array of Funds to choose

from, the Indian investor is doing better as is

the Economy.

References

1. http://cafemutual.com/news/industry/1269

2-sip-inflow-increases-by-53-in-fy-2017-

18


3-80-sips-have-a-ticket-size-of-less-than-

rs5000


6-industry-sees-reduction-in-sip-

discontinuation


5-six-out-of-10-sips-are-active-for-over-5-

years

5. https://economictimes.indiatimes.com/new

s/economy/indicators/india-fastest-

growing-economy-at-7-4-per-cent-in-

2018-imf/articleshow/64089078.cms

6. https://economictimes.indiatimes.com/mf/

analysis/a-five-minute-guide-to-sip-or-

systematic-investment-

plan/articleshow/60372408.cms

7. https://economictimes.indiatimes.com/ind

ustry/transportation/shipping-/-

transport/indian-ships-lose-share-in-

countrys-overseas-trade-

survey/articleshow/60023483.cms

Mr. Keerat Singh is a student in the 12th

Grade student, who

researches in his free

time. After taking several

online courses and researching on Mutual

Funds, I have gained the insight as to how to

SIPS operate. To enhance my knowledge on

the broad subject, have Financial Operations

interned with one of India’s leading Fund

Houses and the Financial Department to

understand the broad dynamics of Financial

derivatives and equity finance. As a student, i

am studying Economics at a Higher Level in

the IB Diploma and this has aided in my

evolving interest in the subject. I hope to study

it a higher level in college as I feel it will

provide me with answers to feed my curious

nature.



93

http://cafemutual.com/news/industry/12692-sip-inflow-increases-by-53-in-fy-2017-18



http://cafemutual.com/news/industry/12213-80-sips-have-a-ticket-size-of-less-than-rs5000



http://cafemutual.com/news/industry/11916-industry-sees-reduction-in-sip-discontinuation



http://cafemutual.com/news/industry/11885-six-out-of-10-sips-are-active-for-over-5-years



https://economictimes.indiatimes.com/news/economy/indicators/india-fastest-growing-economy-at-7-4-per-cent-in-2018-imf/articleshow/64089078.cms




https://economictimes.indiatimes.com/mf/analysis/a-five-minute-guide-to-sip-or-systematic-investment-plan/articleshow/60372408.cms




https://economictimes.indiatimes.com/industry/transportation/shipping-/-transport/indian-ships-lose-share-in-countrys-overseas-trade-survey/articleshow/60023483.cms





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