Which Type of SIP Gives The Highest Return?

In India, mutual fund SIPs are the most preferred option who are looking to generate market-based returns and create wealth over the long-term. SIPs are divided into the following groups based on the kind of mutual funds that investors invest in debt, hybrid, index, equity, and sectoral/thematic funds. The characteristics and advantages of these funds differ.

However, the kind of Systematic Investment Plan (SIP) that yields the highest return usually depends on a number of variables, such as the investor's risk tolerance, market condition, tenure of the investment, and the kind of fund the investor is investing in. For instance, SIPs for equity mutual funds have a history of generating the highest returns when compared to other mutual fund categories.

The total asset under management (AUM) of the Indian mutual fund industry increased to Rs. 61.16 lakh crore in the June 2024 quarter compared to Rs. 44.39 lakh crore in the same period the previous year, demonstrating the growing popularity of mutual funds. For the fourth straight quarter, net inflows into mutual funds with open-ended mutual funds climbed.

In Q1FY25, net inflows into open-ended mutual funds went up by 413% over the same period the previous year. After reaching a record high of Rs. 21,262 crore in Q1FY25, the monthly SIP contribution has been over Rs. 20,000 crore for the past three months. These are some examples of the growing mutual fund industry in India.

Which SIP Has The Potential To Yield Higher Returns?

As per Mayank Bhatnagar, Co-founder and COO, FinEdge, when investing in an equity mutual fund, risk and return are directly co-related, hence, those willing to take higher risks are likely to achieve higher returns. This is particularly evident in small-cap funds, which invest in companies with lower market capitalizations. These companies demonstrate higher volatility and risk. Historically, SIPs in Small-Cap funds have delivered the best returns.

However, choosing a fund based singularly on potential returns may not be the best approach. Since risk and return are entwined, it would be best to allow time and discipline to mitigate the associated risk. In simple terms, an investor must invest in a staggered fashion over a much longer duration to reduce the risk of investing in high-return funds.

These funds reward investors who show patience and resilience. During the COVID-19 market crash, the small-cap index dropped by 35% in 60 days, causing significant losses in investment portfolios. However, investors who stayed patient not only recovered their losses but also gained from the market rebound. For instance, a SIP in a small-cap fund started in 2017 showed a 28% loss in 2020 (during COVID), but by 2024, the investment could yield an approximate 170% absolute return.

To get the best out of investing in small-cap funds, it is important to have a long-term investment horizon. Investing for the longer term mitigates volatility and linking the investment to a goal gives purpose to your investments and lets compounding work effectively. Importantly, engage with an investment expert to create an investment plan to achieve your financial goals and maximizing your SIP returns, he further added.

How To Determine The Type of SIP?

S Ravi, Founder, Ravi Rajan & Co., said there are various types of sips which are available to mutual fund investors. The structure and the character of the scheme by the fund houses determine the risk and the reward. The market conditions keep on changing and the right type of sip must be invested in. The nature and profile of the investor also play an important role in determining the type of SIP. One has to invest. The funds can be pure equity, balance fund, which is equity and debt or a pure debt fund. It also depends on the scheme and the sectoral exposure that the SIP provides.

The best sip is a weekly sip in exchange-traded funds. Primarily because it provides data points that cover India over a year. The week-on-week covers 52 points in a year. This also covers a broad spectrum of indices with a low management fee. Return is able to counter inflation also. Diversification of investing across the sectors. Added to that is the flexibility, which is transparent and the amount can be on the basis of the profile of the investor. The cost is lower because of the low expense ratio, he further stated.

Mutual Fund Scheme Performance

According to Dhartikumar Sahu (Data Analyst) at IDBI Capital, here is the mutual fund performance in July 2024.

1) Large Cap Fund gave an average annual return of 35.13% in July'24. There were around 30 schemes in the market during the said period. The Large Cap Schemes are benchmarked against Nifty100 TRI & S&P BSE100 TRI offered 33.7% and 32.87%. JM Large Cap Fund, the topper in the Large Cap Category offered 47.27%, Taurus Large Cap Fund offered 44.61%, Quant Large Cap Fund 44.27% on YoY basis.

2) Large Mid Cap Fund gave an average annual return of 44.21% in July'24. There were around 26 schemes in the market during the said period. The Large Mid Cap Schemes are benchmarked against NIFTY Large Midcap 250 TRI & S&P BSE 250 Large Midcap TRI offered 44.45% and 37.57%. Quant Large and Midcap Fund, the topper in the Large and Midcap Category offered 59.92%, Bandhan Core Equity Fund offered 55.98%, Motilal Oswal Large and Midcap Fund offered 54.27% on YoY basis.

3) Multi Cap Fund gave an average annual return of 46.01% in July'24. There were around 19 schemes in the market during the said period. The Multi Cap Schemes are benchmarked against Nifty 500 Multicap 50:25:25 TRI offered 45.31%. HSBC Multi Cap Fund, the topper in the Multi Cap Category offered 57.02%, Kotak Multi Cap Fund offered 55.35%, Axis Multi Cap Fund offered 52.51% on YoY basis.

4) Flexi Cap Fund gave an average annual return of 40.15% in July'24. There were around 35 schemes in the market during the said period. The Flexi Cap Schemes are benchmarked against NIFTY 500 TRI & S&P BSE 500 TRI offered 39.28% and 38.94%. JM Flexi Cap Fund, the topper in the Flexicap Category offered 63.76%, Bank of India Flexi cap Fund offered 63.61%, Motilal Oswal Flexi Cap Fund offered 57.43% on YoY basis.

5) Mid Cap Fund gave an average annual return of 52.98% in July'24. There were around 29 schemes in the market during the said period. The Mid Cap Schemes are benchmarked against NIFTY Midcap 150 TRI & S&P BSE 150 Midcap TRI average offered 55.53% and 58.73%. Motilal Oswal Midcap Fund, the topper in the Midcap Category offered 69.49%, ITI Midcap Fund offered 68.94%, JM Midcap Fund offered 62.76% on YoY basis.

6) Small Cap Fund gave an average annual return of 48.63% in July'24. There were around 24 schemes in the market during the said period. The Small Cap Schemes are benchmarked against NIFTY Small Cap 250 TRI & S&P BSE 250 Small Cap TRI average offered 59.11% and 54.44%. Bandhan Small Cap Fund, the topper in the Small Cap Category offered 72.91%, Mahindra Manulife Small Cap Fund offered 64.46%, ITI Small Cap Fund offered 64.12% on YoY basis.

7) ELSS gave an average annual return of 41.13% in July'24. There were around 36 schemes in the market during the said period. The ELSS Schemes are benchmarked against Nifty 500 TRI & S&P BSE 500 TRI offered 39.28% and 38.94%. Motilal Oswal ELSS Tax Saver Fund, the topper in the ELSS Category offered 59.37%, SBI Long Term Equity Fund offered 56.7%, ITI ELSS Tax Saver Fund offered 55.17% on YoY basis.

8) Focused Fund gave an average annual return of 38.16% in July'24. There were around 27 schemes in the market during the said period. The Focused Fund Schemes are benchmarked against NIFTY 500 TRI & S&P BSE 500 TRI offered 39.28% and 38.94%. Invesco India Focused Fund, the topper in the Focused Fund Category offered 64.65%, Mahindra Manulife Focused Fund offered 50.94%, JM Focused Fund offered 47.53% on YoY basis.

9) Dividend Yield Fund gave an average annual return of 49.13% in July'24. There were around 9 schemes in the market during the said period. The Dividend Yield Schemes are benchmarked against NIFTY 500 TRI offered 39.28%. LIC MF Dividend Yield, the topper in the Dividend Yield Category offered 59.79%, ICICI Prudential Dividend Yield Equity Fund offered 54.57%, Aditya Birla Sun Life Dividend Yield Fund offered 53.58% on YoY basis.

Disclaimer

The recommendations made above are by market analysts and are not advised by either the author, nor Greynium Information Technologies. The author, nor the brokerage firm nor Greynium would be liable for any losses caused as a result of decisions based on this write-up. Goodreturns.in advises users to consult with certified experts before making any investment decision.