Answering: What are the ideal number of SIP an investor should have? Should one have a different SIP for each investment objective? How many funds should one SIP in?
Right Stock at Right Price for Right Time
Have you ever invested in a stock on someone's advice to make profit and then has to wait for months, maybe years, to recover capital? Not anymore.
I am not any kind of financial planner and more inclined towards investing in equity. Most of my advice is always been to invest in equity. Again this answer will be focused on equity linked mutual fund SIP and not take into account the debt funds or liquid funds or portfolio allocation to debt funds.
I don’t invest in debt funds and often advise people to keep money in a bank account then consider investing in any liquid funds because if we tend to invest in debt funds, we start to become penny wise and dollar foolish.
I may be wrong but then this is what I do. I even avoid savings account and keep my funds in my current account because I am fine if I don’t make those pennies at the end of each quarter.
So let me answer this question like how many equity mutual fund SIPs are ideal for an investor.
If investment amount is less than ₹2000 per month?
If you are considering to invest anything under ₹2000 per month, don’t focus too much on diversification and number of SIPs. Keep things simple and opt for 1 SIP in a best multi cap fund. Let the fund do the diversification and maximize returns.
If investment amount is more than ₹2000 per month?
The allocation of these funds will depend on your risk appetite. Consider your allocation as follows
If you are an aggressive investor, allocate:
- 20% in small cap fund.
- 30% in midcap fund.
- Rest in a large cap fund.
If you aren’t very aggressive investor and would like more stability and less volatility in your portfolio, consider
- 15% in small cap fund.
- 20% in midcap fund.
- Rest in a large cap fund.
If you want even more stability in your portfolio, you can reduce the allocation to small-cap and midcap funds accordingly.
How many funds to achieve diversification?
It is not about the number of funds that you have in your portfolio that will provide necessary diversification of exposure. It is about the underlying assets that fund invests in.
So if you are selecting more than one fund from the same category of funds, you are just doing more paperwork and not diversifying the investment.
So don’t focus on more number of funds but more funds from different categories. One fund in each category is good enough for diversification.
Should One Have a different SIP for each investment objective?
Ideally YES but it does not mean you need to be doing the SIP in a different fund. Don’t make a mistake of understanding a different SIP means a SIP in a different fund. You can do multiple SIP in the same fund for different objective using a different folio number.
It is recommended if you wish to withdraw a certain portion of your corpus at a different time in the future. Child education, purchase of property etc.