Planning a Mutual Fund SIP: Key Factors to Review Before Investing
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Most people choose a mutual fund just like they choose a restaurant. They check out the star rating and hope for the best. But when it comes to investing in a monthly SIP, one must look beyond the star ratings. Because the numbers on a fund’s prospectus hold the key to its performance. Let’s explore some crucial pointers using the funds provided in Canara Robeco stable to understand what one must look out for before investing.
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The numbers say it all: A closer look at the Canara Robeco funds
Canara Robeco mutual fund is a thematic fund. Its 1-year returns are -2.54% and 3-year returns are 16.78%. The risk rating is “Very High”. Another fund, the Canara Robeco Mid Cap Fund, has a 1-year returns of 1.24% and 3-year returns of 15.5%. It also has a “Very High” risk rating.
What should one make of the numbers? Well, a 3-year SIP in the infrastructure fund would yield 16.78% returns. But the 1-year number tells us that the returns in the past year have been negative. Had one invested in a lump sum a year back, they would have seen negative returns. Now that is the beauty of a SIP, it helps one ride through the volatility. But one must assess if they can withstand a “Very High” risk level.
The small print: Expense ratio
Looking at the expense ratio in the image above, the infrastructure fund has an expense ratio of 1.16% and the mid-cap fund has an expense ratio of 0.86%. The funds mentioned here are direct plans, which usually have a lower expense ratio than regular plans. These numbers might seem inconsequential, but they add up over the years. A difference of 0.30% in the expense ratio can cost lakhs of rupees over a 20-year SIP. Thus, the mid-cap fund, with its 0.86% expense ratio is a better choice than the infrastructure fund, which has an expense ratio of 1.16%. However, the infrastructure fund seems to be a decent bet for a thematic exposure.
If one feels that the numbers are too daunting, they can use the SIP calculator online found on Angel One’s website to get an idea of their future earnings. By plugging in a few numbers, one can get an idea of the corpus that they can accumulate. For instance, using ₹10,000 as the monthly SIP amount, 10 years as the tenure, and 10% as the expected returns, we can compute the corpus that one would accumulate. If one were to change the tenure to 15 years, they would see how the accumulated corpus grows exponentially. One can tweak the numbers and try out different scenarios.
The checklist before one invests in a SIP
Before one invests in a SIP in any of the Canara Robeco funds or any other scheme, one must go over the following checklist:
1. Look at the risk rating of the scheme. Consider whether you can sustain a 20% drawdown.
2. See beyond the 1-year returns. Ideally, one should look at the 3 and 5-year SIP returns to get a sense of the fund’s performance.
3. Check the expense ratio. Although it might seem like something trivial, it can eat into the earnings with every SIP instalment.
4. Lastly, one should use the online SIP calculator to get an idea of what their investment would look like in the future.
Angel One has over 4,000 schemes to choose from, including the entire Canara Robeco range. And one can start their SIP journey with Angel One with zero commissions charged on the SIP. Armed with the knowledge, one can start a SIP in a matter of minutes and let the money grow. The markets are very unpredictable, but one’s journey need not be.