Starting an SIP - HDFC Funds

[sinceresiva]

Hi All,

I am planning to go for an SIP with an amount of Rs.8000 per month for the next 8 years. I am planing to invest in HDFC Top 200 and HDFC Equity funds on a 50-50 basis.

But considering the current bull market (sensex around 20400 right now) should I still go ahead with the SIP or wait for the market to come down a little?

Any help is appreciated.

Thanks,

Siva

 

[Jesse]

SIP is actually meant for taking advantage of lows & highs so you don't need to time the market as nobody can perfectly predict it.

Lets say I tell you that wait for 4-6 months the market will correct or fall below 18000 then you start SIP, & in reality the market goes up & up to touch 23000 in those 6 months what you have lost is a valuable opportunity to earn profits of those 6 months.

If you started the SIP now & market goes down you will loose some, if it goes up now you gain so SIP takes advantage of this law of averages which in long run of 5-7 years gives you gain of more than what you earn in the FD.

 

[sinceresiva]

Thanks a lot. I think I will go for the SIP now. Your advice is much appreciated.

Only thing I am confused is whether I should go for Growth option or Dividend option. For a longer term of say 5 years or more, is it advisable to go with the Growth option?

Thanks in advance,

Siva

 

[Jesse]

Shiva 4 years ago I was in your place exactly trying to wait for the market & I lost 1 year while waiting. Later I choose 5 funds all growth option bcoz this SIP amount was the spare amount which was kept in the bank & I was ready to take the risk of loosing money, infact I lost a lot of money in short term but my investment was not for short term. Today all losses are recovered when the markets are high. I can book profits now & change my funds or I can still continue as I don't need that money immediately.

Quoting from this thread in MF section of the forum
http://www.traderji.com/mutual-funds-discussion-forum/4004-mf-scheme-dividend-growth-bonus.html
Growth Plan and Dividend Plan
A growth plan is a plan under a scheme wherein the returns from investments are reinvested and very few income distributions, if any, are made. The investor thus only realises capital appreciation on the investment. This plan appeals to investors in the high income bracket. Under the dividend plan, income is distributed from time to time. This plan is ideal to those investors requiring regular income.
Dividend Reinvestment Plan
Dividend plans of schemes carry an additional option for reinvestment of income distribution. This is referred to as the dividend reinvestment plan. Under this plan, dividends declared by a fund are reinvested on behalf of the investor, thus increasing the number of units held by the investors.

In Growth plan- the unit value keep on increasing.
In Dividend reinvestment plan - you get additional units for the dividends

This link also should help
http://www.valueresearchonline.com/learning/storylearning.asp?str=7768

Dividend PAYOUT option will pay you money from your current market value ie from your money which had grown due to increase in NAV. Whereas the Growth option will not do like this. Another option is Dividend Re-Investment will invest the Dividend received thereby increasing the units.

Dividend Payout-->When u go for this option u r supposed to get the dividend declared by fund.Whenever Dividend is declared u will observe fall in ur NAV
Dividend Reinvestment-->In this Case whenever dividend is declared ..Instead of giving dividend to u ..it will be again invested in ur fund.
Growth-->It is most opted choice of investors .In this kind of funds Dividends are not declared but ur investment will grow.

Hope this helps.
Jesse

 

[rajivnc]

Thanks a lot. I think I will go for the SIP now. Your advice is much appreciated.

Only thing I am confused is whether I should go for Growth option or Dividend option. For a longer term of say 5 years or more, is it advisable to go with the Growth option?

Thanks in advance,

Siva

There are mainly 3 options. Just search google or try the following links
http://mytipstowardswealthy.blogspot.com/2010/10/growth-vs-divident-option.html

 

[yodlee99]

Jesse nicely covered the factors here. One more point to remember is that dividends are taxed under Dividend distribution tax of ~ 15% at the hands of the company before it reaches you and reduces the overall gain.
If you don't need the money, let it grow in the growth mode for long term (5-10 yrs+). There is lot of steam left in our growth story. Invest using SIP on different days of the month/week in a few well-managed diversified mutual funds.
BTW, you have 2 funds HDFC Top 200 & Equity both in the same fund house. Even if the managers are different, sometimes the portfolio is similar and it is always advised to diversify across fund houses. I would suggest, HDFC Top 200 and Reliance Regular savings equity or DSPBR Equity in place of HDFC Equity (multicap) fund.

Good luck!

 

[sinceresiva]

I am glad I didn't waste time going to some investment advisor and waited for an advice. I'm happy I asked you guys because you guys definitely are the real experts. Thanks a lot for everything...Off I go to take an SIP...

 

[comm4300]

There are mainly 3 options. Just search google or try the following links
http://mytipstowardswealthy.blogspot.com/2010/10/growth-vs-divident-option.html

found this on the blog.....

could anyone explain how the div. reinvest option give more return than the growth option ? thanks.

 

[drsambu123]

found this on the blog.....

could anyone explain how the div. reinvest option give more return than the growth option ? thanks.

I agree with yodlee. After DTC , dividend will be taxed....So growth would be the better option than divident reinvestment....

 

[Jesse]

Invest using SIP on different days of the month/week in a few well-managed diversified mutual funds.

I would like to know the reasoning behind this as of now I assume that your suggestion is for averaging the buying price across the month, or is there any other reason.

Jesse