Breaking SIP periods in multiple intervals, rather than 1 SIP for longer time

POSTED BY Sumit ON February 1, 2013 6:07 pm COMMENTS (13)

 

I have a basic question- rather than continuing 1 single SIP for 30 years (say 2000/month), if I start it for 10 years (2000/m) and after completing it, again start a new one for 10 years (same amount) from 11th years to 20th year and then again new one for 10 years (same amount) from 21st year to 30th year, Does it makes difference in returns?

 

13 replies on this article “Breaking SIP periods in multiple intervals, rather than 1 SIP for longer time”

  1. Dear Sumit, No matter what approach one takes, single SIP for 30Y or 10Y*3 SIP intervals. At the end of the day, the result should be favorable. All of us are talking only as an assumption. Down the line after 5-7-10 years, the over all returns from the chosen funds by you may not be in the same league so you may discontinue the same. May be you’ll go out of India & after that, not able to track or interested in Indian investments. The so called fund manager ‘ll not be managing your money for all these future 30Y. these are only some examples. There may be many more things which may impact your choice down the line.

    So what’s the important thing as of now? Nike – Just Do it. Just start investing as of now. The fine tuning can be done later on as per the need of the hour at that time.

    Thanks

    Ashal

  2. Krishna Kishore Appala says:

    Hi Sumit,

    Please read my above answer in case of redemption after every 10 years. I interpreted the question in that way.

    As already said dear FFC and Ramesh, In the case of non redemption it will not any difference. Because all you own is units and compounding works more on the units that you have bought earlier.

    Thanks
    Krishna Kishore Appala

    1. Sumit says:

      Thanks for the explanation Krishna.

  3. Sumit says:

    I will just break the 30 years in three- 10 years cycle, that’s it.
    I will not redeem anything after each one completing its term for 10 years – (to let it grow) and continue investing on the next one and then redeem all together after 30 years span. I don’t see how that will make any difference, the concept of SIP is just the approach/frequency is spread over. I may be wrong, or missing something here. Can you please throw some light?

    1. Ramesh says:

      You are not wrong. There will be no difference at all.

      But understand this thing, will you only do a 2k SIP for next 30 years? Is that practical? Will you never get a raise or will never be able to increase the amount of savings?

      1. Sumit says:

        Thanks Ramesh for your reply, the amount 2K is just for an example. I am planning to start around 5K-6K/m.
        But the reason I am asking this question is – my broker cancelled my online SIP orders (30years) which were suppose to start from today, when I called them they said their system allows maximum of 10 years SIP in NSE.

        Can you please suggest what shall be done?

        1. This is nothing to worry about. MF investments should be monitored frequently. So having a SIP run only for a few years is not disadvantageous at all. In most cases a fund will under-perform and you need to shift. So don’t assume your SIP will run for 10 years!

        2. Ramesh says:

          Number 1: The total amount is important.

          Number 2: More the amount during bear markets, more will be the total corpus. In general, the earlier you put your money in, more should be the corpus after long periods of time.

          Number 3: If you have found a fund which has given decent returns consistently (need not be the top performer), with a consistent management team having a clear and consistent management style, then you do not even need to monitor the performance. Just continue looking at the management qualitatively and keep putting your money into that. No need to worry about the fund not performing well for some quarters or even years.

          Number 4: With the new system in place, I would push for a Direct investment with the AMCs, whichever fund you have selected. Go for whatever maximum time is available for SIPs. Add more as you are able to increase your savings (in general, at least add whatever increase is their in your salary, every year).

          Keep learning more.

          1. Sumit says:

            Thanks Ramesh for your advice, but can you please tell me the advantages of direct investment with AMC.
            I mean, with my broker website (Sharekhan) I can manage my profile for different MFs SIP in one place and anyway I am maintaining the account for long. Now if I create HDFC account for buying 2 HDFC MFs – aren’t they are going to change something annually to maintain my account?

          2. Sumit says:

            Thanks Ramesh for your advice, but can you please tell me the advantages of direct investment with AMC.
            I mean, with my broker website (Sharekhan) I can manage my profile for different MFs SIP in one place and anyway I am maintaining the account for long. Now if I create HDFC account for buying 2 HDFC MFs – aren’t they are going to change something annually to maintain my account?

            1. Ramesh says:

              1. No maintenance charges.
              2. A decrease in the expense ratio of around 0.5-0.6% per annum over the entire corpus, every year.
              3. No charges for SIPs at all.

              Disadvantages: each AMC will show its own funds only. So no aggregation.
              If you are of the sort of moving around between different funds of different amcs, then not recommended for you.

  4. If you don’t reinvest the maturity amount from the first 10 years to the new sips started in 11th year it will make a very big difference to the final corpus. If you do reinvest the difference will only very small if any.

    If you don’t reinvest it is very likely that you cannot achieve your long term goals

  5. Krishna Kishore Appala says:

    Hi Sumit,

    Certainly on an overall returns, single SIP will have an higher edge.

    Benefits of SIP include rupee averaging and Power of compounding.

    In the single SIP you get the power of compounding to the fullest. While in the second scenario, only the first 10 years SIP will have the maximum usage of compounding, and it reduces for second and third SIP’s.

    Just think it in terms of pure maths, since compounding is denoted as an exponential function, its clear that (2 power 9) is always greater than (2 power 3) added three time.
    In longer terms comes the actual power of compounding.

    And also, SIP works wonderful if they go through more number of market cycles, because of rupee cost averaging. Single SIP gets will surely go through 2 bear and 2 bull markets in a span of 30 years. And this option you will not get in third 10 year SIP.

    You will wonder to see that on 28th,29 year the amount you deposit in SIP (2000/-) will be no where close to (i would say negligible) when compared to compounded interest you get in that years.

    Thanks
    Krishna Kishore Appala

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