In a volatile market, take SIP route to build your portfolio

SIP investors in equity mutual funds have a different story to tell, despite the Sensex and Nifty remaining flat over the last three years. Investors who used the SIP route and invested a fixed amount of money in equity mutual funds at a specified date every month, have earned a return of more than 10% in the same period.

For example, a three-year SIP in Axis Equity Fund has given investors 14.01% returns. As compared to this, a lump-sum investment in the Sensex or Nifty would have given you a mere 1.36% and 1.02%, respectively.

SIPs help investors put in small amounts of money every month and invest in a staggered manner. "The markets have been volatile over the last three years. Investing in mutual funds through SIPs ensured investors accumulated more units when markets were hovering at lower levels," explains Rupesh Bhansali, head, mutual funds, GEPL Capital. This strategy seems to have paid off for investors. "As the indices move close to an alltime high, many of these investments are now showing healthy profits," says Rupesh Bhansali.

Most investors are aware of rupeecost averaging and the last three years are a classic example of it.

"SIPs help you buy more when the markets are low. When the equity markets remain volatile for long periods and eventually move up, investors in SIPs make money," says Chandresh Nigam, managing director and chief executive officer, Axis Mutual Fund. He further points out that many active fund managers have managed to beat the benchmark in the long-term. A SIP in a well-managed diversified equity fund can improve your returns over the medium- to long-term. Many experts believe that investors should not time the markets and use the SIP route to investing.

"SIP is the best method of investing in equities, as we do not know which direction, up or down, the markets will go," explains Harshvardhan Roongta, principal financial planner, Roongta Securities. Mutual fund SIP can be used to build a diversified equity portfolio. Experts prescribe a mix of large-cap and midcap oriented equity funds in line with one's risk appetite. Typically, mid-cap funds should not be more than 40% of your equity allocation. You can pick up five-star rated funds by independent agencies such as Value Research and Morningstar. You can also consult your advisor.

Rupesh Bhansali recommends ICICI Focused Bluechip Fund, BNP Equity Fund, UTI Opportunities Fund among large-cap funds and Magnum Global Fund, IDFC Premier Equity Fund and ICICI Discovery Fund among mid-cap funds. But if you do not know how to choose the right fund or are unsure if the fund recommended by your advisor will emerge as a winner, you could even opt for an SIP in an index fund.