HDFC Mutual Fund AMC is a leading fund house in India that offers a range of mutual funds across key categories of equity, debt and hybrid – making its investment products suitable for investors from various walks of life. In case an investor plans to invest in any fund managed by HDFC Mutual Fund AMC, they have the choice of investing via the lump sum method or through an HDFC SIP. The systematic plans on offer by HDFC are flexible and easy to avail, which make it a popular choice among investors seeking to grow their wealth through mutual fund investments. As per existing rules, HDFC SIP can be availed by an investor for any tenure of his/her choice and for any amount subject to the minimum SIP investment requirements rules that may differ from one mutual fund scheme to another.
How HDFC Mutual Fund AMC SIP Works
The basic concept of a systematic investment plan is derived from the idea of the recurring deposit wherein the investor deposited a fixed amount of money (SIP individual) at regular intervals of time (usually monthly) and this capital is then invested into a recurring deposit account. Such deposits subsequently accrue interest at a predetermined rate till the date of maturity, which is subsequently paid out to the investor. An HDFC SIP also works in a similar way as the investor periodically invests a predetermined amount of money into an HDFC mutual fund scheme. The investor can increase or decrease the tenure of a current SIP with ease as long as the minimum SIP tenure is 6 months or more depending upon the scheme one is investing in. There is also a minimum amount that an investor needs to invest in order to qualify for a HDFC SIP and this is usually Rs. 500, but may be higher depending upon the mutual fund scheme one is investing in. At present, all the investor needs to do is to submit either postdated cheques with their distributor/fund house representative office or set up an ECS mandate to get started with investing in mutual funds of their choice.
Exit Load and Lock In Period Considerations for SIP
Some HDFC Mutual Fund AMC schemes have an exit load that is applicable to units in case these units have been held for less than a pre determined period of time as per the scheme documentation. If you are making SIP investments, the applicable exit load rule stays in effect however depending on the date on which the units were actually allocated as per applicable NAV rules. For example let’s say that you were allocated 100 units in lieu of SIP purchase of a fund on the 7th of April 2016 and 115 additional units of the same fund were allocated on 7th May 2016 as a result of another SIP transaction. Let’s assume that the fund has an exit load of 1% in case you are redeeming or switching units before completion of 365 days from the date of allotment. In this case, you will not be charged an exit load if you were to redeem/switch 100 units of the fund on the 9th of April 2017 and 115 units on the 9th of May 2017. On the other hand if you were to redeem or switch all 215 (100+115) units on the 1s of May 2017, you would have to pay an exit load on the 115 units purchased in May 2016, while the remaining 100 units purchased in April 2016 would be free of any exit load. It must also be noted that the exit load is not related to any short term or long term capital gains taxes that may be applicable to your fund at the time of redemption/switching as these taxes are charged separately.
SIP purchase of tax saver mutual fund units are also subject to the same 3 year lock-in period rule as observed in case of lump sum investments. Hence taking the data from the previous example, the 100 units purchased on 7th April 2016 will no longer be locked-in on the 9th of April 2019, while the additional 115 units of the fund will be available for redemption or switching by the 9th of May 2019.
Benefits of Investing in a HDFC Mutual Fund Scheme through an SIP
Promotes Disciplined Investments: At the beginning of each financial year, a significant majority of investors, resolve that they will invest more this time around. Needless to say, this almost never happens as most of us find excuses to spend at least some of the money earmarked for investment. Fortunately in case you plan your annual investment goals through a systematic plan such as HDFC SIP, you stand a better chance of reaching your investment goals in the short term as well as the long term. This is mainly because by investing through an SIP, the investor follows a disciplined approach to making their investments, which makes sure that the pre-determined investment targets are approached without unhinging the overall monthly or annual budget set by the individual investor.
Rupee Cost Averaging Benefit: The price of the HDFC mutual fund you are investing in through the HDFC SIP is liable to change on a daily basis when markets are open. Now the SIP amount is fixed, so depending on whether the unit price of the fund increases or decreases, the number of units you will be able to buy for the same amount will change. Thus, in effect you will be averaging the price of the units by buying at a higher or a lower level each time your HDFC SIP request is processed. For example, let’s say you start a monthly HDFC SIP for Rs. 1000. At the time of the first SIP installment, the unit price is Rs. 5 so you would end up purchasing 200 units of the fund. Let’s assume the price increases to Rs. 10 at the time of the 2nd SIP and now you can purchase only 100 units of the same fund. Thus you have 300 units of the fund for Rs. 2000, thus the average unit price for you is Rs. 6.67, which though higher than the minimum price, is much lower than the new higher price of your units. Thus, if you were to redeem your units at this point of time, you will end up with a profit. This is the benefit of rupee cost averaging in action.
Investment Tenure Flexibility: Your HDFC SIP can be for a period as short as 6 months or any other period of your choice subject to individual fund’s minimum SIP tenure restrictions that might be in place. That said, the tenure of your HDFC SIP can be increased or decreased as per your investment target or any other requirement as long as such a change does not violate the minimum SIP tenure criteria for the HDFC Fund you are investing in. Apart from the opportunity to change the HDFC SIP tenure, you can also log into your mutual fund investment account and stop any current SIP without having to worry about penalties that might occur in case of you were to stop your bank recurring deposit prematurely.
Flexibility Investment Amount: You can start a HDFC SIP for an amount as low as Rs. 500 to a much higher amount of your choice in a mutual fund that suits your investment goals. As long as the account you set up your SIP with is funded by the SIP schedule date, each fund payout will happen automatically on the scheduled date if markets are open or on the next working day if the scheduled date is a holiday for capital markets. Moreover, there is no limit to the number of HDFC SIP you can run simultaneously and best of all you can change the original individual HDFC SIP amount to a higher or lower amount of your choice without much trouble. This level of flexibility is unheard of in case of any other style of making mutual fund investments.
Long term Investment Benefits: In the long term, equity markets always go up even though there might be a few periods of bullish and bearish markets in between. This is mainly because as time goes on, most companies expand either by growing their business or by acquiring competitors or by entering new markets. In either case, the investor who has started investing early, no matter how small,l each individual investment can look forward to suitably high levels of capital appreciation in the long term. Thus, small savings of today done through an HDFC SIP are capable of providing a substantial level of wealth to the investors in the future. In effect, this is similar to the benefit that an investor of a fixed income instrument receives from the benefit of compounding.
Less Effort to Earn High Returns: An HDFC SIP grows your wealth without you having to fret about the direction in which the market would move. Consider this, in case you are following a DIY investment system, you will have to track markets daily, which is the key method to ensure that you enter the market at just the right time, which means, you need to “time the market”. Such action will obviously require a high degree of effort, something that is not required in case you are using the SIP route. Once you set it up, it will get done automatically without the investor having to worry about “timing markets”. In the long term, SIP is a lot less effort than lump sum investments and you will still end up growing your wealth.
Leading HDFC Mutual Fund Schemes for making SIP Investments
HDFC Mutual Fund AMC offers its investors a number of leading mutual fund schemes that can offer superior returns whether one invests through SIP or lump sum methodology. Following are some of the top equity investments managed by HDFC Mutual Fund AMC that an investor can make through a SIP in order to make their small periodic investments grow to a significantly larger corpus in the future.
HDFC Small Cap Fund
The HDFC Small Cap Fund features the stated objective of providing capital appreciation to its clients through various equity and equity-based investments made in leading small and mid cap companies. Some would consider this to be a higher risk investment among other equity funds available on offer from HDFC Mutual Fund AMC however this additional risk has provided the fund’s investors with superior returns since inception. Even after operating in various volatile market conditions, the HDFC Small Cap Fund has negotiated bear markets fairly well while providing significant growth during market bull runs. This performance makes this equity fund a popular choice for SIP investments.
HDFC Long Term Advantage Fund
More often than not, salaried individuals tend to invest in ELSS or tax saver mutual funds through the SIP route. In case you are considering a HDFC SIP into an ELSS, do take a close look at the HDFC Long Term Advantage Fund. This ELSS has weathered multiple bullish market conditions since its inception and is definitely one of the best tax saver mutual funds for SIP investments available from HDFC Mutual Fund AMC. The fund invests in a range of equity and equity-derivatives in order to provide its investors with suitable levels of capital appreciation. The fund has historically shown a preference for large cap equity investments with smaller capital allocation towards mid and small-cap equities. This has helped the fund negotiate bear markets better than most of its peers.
HDFC Prudence Fund
The HDFC Prudence Fund is an equity oriented hybrid fund that has been making waves in recent years. Like other balanced funds, this equity-oriented balanced fund features a diversified portfolio of equity as well as debt and money market investments. Historically this fund has held over 80 different equity stocks in its portfolio with a major proportion of the fund’s equity investments geared towards large cap companies. While the equity portion of the fund’s portfolio leans towards the conservative side, the debt portion of the fund mainly features high quality bonds and government securities. However, the fund’s portfolio has also featured one or more relatively lower rated AA- bonds for the purposes of interest accrual from the higher coupon rates.
HDFC Tax Saver Fund
HDFC Tax Saver Fund, as the name suggests is an ELSS investment, hence an HDFC SIP made into this fund is capable of providing the investor with tax benefits under Section 80C of the Income Tax Act, 1961. The fund has historically shown a large cap bias with not less than 80% of its capital invested in Equities with bonds, preference shares and fully convertible debentures accounting for the balance portion of the portfolio. As per portfolio data for the fund obtained July 31, 2017, this HDFC SIP investment option features over 72% exposure to large cap equities, which makes it one of the safest tax saver options to invest in. Additionally, approximately 25% of the mutual fund’s portfolio includes mid and small – cap investments, which ensure that the fund would provide suitable levels of capital appreciation to the investor during bullish markets.
HDFC Capital Builder Fund
The HDFC Capital Builder Fund is definitely not a new mutual fund since it has been around since 1994 and has a proven track record of generating wealth for its investors. Classified as a multi-cap equity fund, which follows a sector and market-cap agnostic process of investing in equity investments, this mutual fund scheme may also invest in select high quality debt/money market schemes if the situation demands such action. When choosing equity investments, the fund has historically sought out equity investments which are priced at levels less than their fair value and therefore have the potential to provide higher levels of capital appreciation to those investing in the long term.
Table1. Table comparing the above HDFC SIP Fund across select criteria
For purposes of the subsequent illustration, each individual SIP investment amount has been assumed to be Rs. 2000/month equal to a cumulative Rs. 24,000 annually. The SIP start date for purposes of the calculation has been fixed as 1st August, 2016 while end date of the SIP is taken as July, 2017. The maturity value is as per the fund’s NAV recorded on 18th August 2017. The SIP value is based on historical data of the regular plan of each fund and does not guarantee future performance in any way.*
|Fund Name||1 Year Returns||3 Year Returns||5 Year Returns||Total SIP Investment (Principal)||SIP Maturity Value|
|HDFC Small Cap Fund||22.60%||18.48%||21.58%||Rs. 24,000||Rs. 27689|
|HDFC Long Term Advantage Fund||19.57%||12.16%||18.81%||Rs. 24,000||Rs. 27205|
|HDFC Prudence Fund||15.51%||10.97%||17.42%||Rs. 24,000||Rs. 26513|
|HDFC Tax Saver Fund||18.68%||10.21%||17.82%||Rs. 24,000||Rs. 27607|
|HDFC Capital Builder Fund||17.78%||13.83%||19.40%||Rs. 24,000||Rs. 26953|
*The above data is solely for illustrative purposes and uses historical fund performance data, which does not assure future performance of the fund in any way.