Daily investment through mutual funds

PRODUCT ANALYSIS

A systematic investment plan that invests every day in the stock market can capture the movements for the investor. An analysis of its performance.

The advantages of investing through the systematic investment plans (SIPs) route are well documented. To recapitulate, SIP is a method wherein you invests a predetermined fixed sum of money every month, irrespective of the state of the market. 

DIFFERENT STROKES
PERIOD	% CHANGE OF NAV OF ING DOMESTIC OPPORTUNITIES FUND	% CHANGE  VIA ZIP OF ING  DOMESTIC  OPPORTUNITIES  FUND  INVESTMENT OF RS.  1000/- DAILY STP	% CHANGE IN BENCHMARK BSE 100
Stable Period 2/05//06- 31/10/06	-1.20	15.03	4.09
Rising Period 02/01/2007- 31/12/2007	58.68	48.00	58.00
Falling Period 01/01/2008- 29/02/08	-18.47	-5.28	-16.08

For instance, if you want to invest a total of Rs 60,000 in an equity mutual fund scheme a year, you can either do it by putting in a lump sum or through the SIP route of Rs 5,000 every month for 12 months. This amount can be invested on a predetermined day of every month like the fifth or the tenth day.

The biggest advantage for the investor is that there is rupee cost averaging. That is, when the market goes down, more units of the scheme can be purchased because of a lower net asset value (NAV). However, most companies have SIP schemes that allow you to invest on different dates of the month.

Last year, ING Mutual fund introduced a product called Zoom investment Pack or ZIP. The unique feature of this product is that it is a daily SIP. An investor can make a bulk investment in the ING liquid fund and a transfer is made to any of the equity funds of ING Mutual on a daily basis.

The features are as follows:

Affordability: The minimum investment required is as low as Rs 5,000. The investor can choose to invest just Rs 99 per day.

Volatility: Captures daily market movement.

Convenience: Since the investment is made as a systematic transfer plan (STP), only one form needs to be filled.

According to a back-testing done by the fund house, the performance of the daily ZIP is as follows:

They have undertaken a study of the performance of three time periods that include stable market, rising market and falling market conditions by investing through an STP in ING Domestic Opportunities Fund. Also, this performance has been compared with ING Domestic Opportunities fund.

The benefits are apparent in stable and falling markets"�ZIP outperformed. However, in a rising market, investment through SIP will always underperform because fresh investments are made at higher NAVs.

The Indian equity markets have witnessed a turbulent period in the last quarter. While the Sensex has moved from 20,300 points in January 1, 2008 to 16,721 points on April 24, 2008, the volatility during the period has been very high. A product like ZIP can capture the daily movement in the Sensex for the investors' advantage.

The writer is head, mutual funds, Derivium Capital & Securities