What is SIP Top Up

SIP Top Ups.

A Systematic Investment Plan (SIP) is an effective wealth-building tool. By contributing a fixed amount every month, the plan helps you accumulate wealth over the long term. But as your circumstances change and your income grows, you are likely to have more money available to invest.

A SIP Top Up allows you to increase the monthly investment amount periodically. SIP top ups can be specified as a percentage or a fixed amount every year.

Illustration:


  • Intended investment period: 10 years.
  • Investment amount: Rs. 10,000.
  • Expected Rate of return: 12%
  • Frequency of SIP investment: Monthly.
  • Amount of incremental investment: Rs.1000/month annual increment.
SIP  investment of Rs.12 Lakhs, without top-up  becomes Rs.22.4 Lakhs, whereas a Top-up SIP investment of Rs,17.4 Lakhs becomes Rs. 30.43 Lakhs. That's a huge difference of about Rs.8 Lakhs.


Here is a graphical representation of the performance of these two strategies:

sip top up

Why Top up?

Top-ups help reach your financial goals faster. SIPs are designed to help you achieve your long-term financial ambitions.  You can expect your income to grow over the years, so investing more in an existing plan is a logical step towards building wealth.

Check with your AMC for more details.

ICICI Prudential Alpha Low Vol 30 ETF

ETFs are generally passively managed mutual fund schemes tracking a benchmark index and reflect the performance of that index.
ETFs and Index funds are gaining traction in India. The flows into ETFs and index funds are seeing a steady increase over the years across segments. Experts see the surge in flows as a positive indicator of the gaining acceptance of ETFs.

In this scenario, ICICI Prudential Mutual Fund is launching Nifty Alpha Low Volatility 30 ETF, a multi-factor index based ETF. Check this post to know more about multi-factor indices.

Fund Details:
Benchmark: Nifty Alpha Low-Volatility 30 Total Return Index.
Listing: NSE and BSE,
Minimum Amount for Application: During NFO: Rs. 5,000 and in multiples of Re.1.
On Stock Exchanges: Investors can buy/sell units of the Scheme in round lot of 1 unit and in multiples thereof.
Issue open: Aug 3- 10.
No Entry load.
Expense ratio: -


Nifty Alpha Low Volatility 30 Index -Methodology.

icici etf


The stocks are picked from Nifty 100 and Nifty Midcap 50, with individual stock weight capped at 5%. Nifty Alpha low-Volatility 30 Index moves away from assigning weights based on market capitalization and instead considers their relevancy to factors.

5-Year Rolling Returns:

Since 01-April-2005 (First Observation on 01-April-2010) till 22-July-2020.

icici etf
Source: Icici MF.

Historically, Nifty Alpha Low Volatility 30 Index has given better risk adjusted returns over the long period.

ICICI Prudential Alpha Low Vol 30 ETF provides investors a choice to take exposure to multiple factors through a single index product. Investors can consider investing this as part of their satellite portfolio, Nifty 50 index funds being the core portfolio.


Nifty Factor Based Indices

Factor-based index strategies combine the benefits of both active and passive investment styles.
They use well established stock-specific factors used in active investment and rules based frame work of passive investment.

Factor based investing has come a long-way after the first factor-based ETF got introduced way back in 2003. There are 1,200+ factor-based equity ETFs/ETPs listed globally with total assets under management of US$534 billion offered by around 150 asset managers.

There are single-factor indices and multi-factor indices. The most popular factors which are typically used to capture long term risk premium across the globe include Alpha, Quality, Value, Low-Volatility amongst others.

mutli factor indices


Single-factor based index strategies, however, typically exhibit cyclicality and may underperform during certain market phases.

An alternative smart beta index strategy is to select stocks based on combination of multiple factors, targeting to counter the impact of cyclicality of single-factor indices.

The 4 multi-factor indices are:
1. NIFTY Alpha Low-Volatility 30.
2. NIFTY Quality Low-Volatility 30.
3. NIFTY Alpha Quality Low-Volatility 30.
4. NIFTY Alpha Quality Value Low-Volatility 30.

Each of the above 4 indices track a portfolio of stocks selected based on combination of 2 or more factors. The factor details along with weights are presented in the table below.

factor indices



Multi-Factor index strategies tend to counter the cyclical behavior of single-factor index strategies by diversifying across factors.

Historically, long term investors and fund managers have relied upon passive investment styles like market capitalization and single factor based portfolio design techniques to capture the premium for systematic risk.

nifty
Source: NSEIndia


Multi-factor based indexing strategies present an effective route through which investors can gain exposure to combination of factors which were earlier accessible only through stock picking in active investment.

Weekend Link Fest: July 26 2020

Best of this week from the world of finance and stocks markets:


weekend 

  • Gold rides to a record, with prospects for $2,000 an ounce stronger than ever. Market Watch 
  • Here’s what a falling U.S. dollar means for the stock market. MW 
  • Reliance Industries puts Rs 35,000 crore from Jio stake sale, rights issue into debt funds. BT
  • Aditya Puri sells shares worth ₹843 crore in HDFC Bank. Livemint