Principal Emerging Bluechip: Strong long term SIP STP and SWP performance

We have reviewed Principal Emerging Bluechip Fund, a large and midcap equity fund from Principal Mutual Fund stable, a number of times in the last few years. In our usual fund reviews, we look at a performance of a scheme across various market conditions, performance versus benchmark and peers, portfolio composition etc.

Read this: https://www.advisorkhoj.com/articles/mutual-funds/principal-emerging-bluechip-fund:-strong-performance-recovery

In this post, we will focus exclusively on the performance of different systematic investment options in Principal Emerging Bluechip Fund since the inception of the scheme.

SIP performance

The chart below shows the growth of Rs 10,000 monthly Systematic Investment Plan (SIP) in Principal Emerging Bluechip Fund since its inception in November 2008. You can see that with a cumulative investment of Rs 14.1 lakhs, you could have accumulated a corpus of Rs 35.76 lakhs as on 13^th July 2020. The wealth creation track record of this scheme since inception is truly commendable. The SIP XIRR return has been over 15.00%!

Source: Advisorkhoj Research

STP performance

In System Transfer Plan (STP) you invest in lump sum in a source scheme (usually a low risk nil exit load fund) and then transfer fixed amounts at regular intervals (weekly, fortnightly, monthly etc.) to your destination scheme.

In this example, the source scheme is Principal Cash Management Fund (a liquid fund) while the destination scheme is Principal Emerging Bluechip Fund. Let us assume you invested Rs 5 lakhs in Principal Cash Management Fund on 1^st August 2011, with the objective of transferring it to Principal Emerging Bluechip Fund through STP over the next 4 months.

It will be useful to remind investors that in April 2011, S&P downgraded US Sovereign Debt Rating causing jitters in stock markets around the world including India. The Nifty saw a sharp fall in August 2011. In this context, the STP was an excellent investment option to take advantage of volatility. If you had invested Rs 500,000 in Principal Emerging Bluechip on 1^st August 2011 you would have bought nearly 17,800 units (@ NAV of Rs 28.09). Instead, you invested Rs 500,000 in Principal Cash Management Fund and transferred Rs 125,000 from the liquid fund to Principal Emerging Bluechip Fund over the next 4 months. Let us see how many units of the scheme you would have been able to accumulate.

Source: Advisorkhoj Research

You can see that at end of STP period you had nearly 20,130 units and Rs 9,392 balance in your liquid fund. If you switched the balance from your liquid fund to equity fund you would have further 395 units of the equity fund.

In total you had 20,525 units. Therefore, through STP you had additional = 20,525 – 17,800 = 2,725 units. The value of these units at today’s NAV (13th July 2020) is Rs 2.7 lakhs.

SWP performance since inception

Systematic Withdrawal Plan (SWP) is a smart investment option by which you can draw fixed amounts from your investment at regular intervals. Let us assume that you invested Rs 20 lakhs in Principal Emerging Bluechip at inception (November 2008). One year later you began Rs 10,000 monthly SWP from the scheme. The chart below shows how much you would have withdrawn and your balance corpus. You can see that over the last 10 – 11 years, you would have withdrawn Rs 12.80, while the current value of your investment would have grown to Rs 1.67 Crores (as on 13^th July 2020).

One important point that investors should keep in mind when planning SWP is to have reasonable withdrawal rate. In our view your withdrawal rate should not exceed 6 – 7% to start with. If you have a high withdrawal rate and unfortunately face a bear market early in your investment tenure your SWP may result considerable unit depletion and you may run the risk of running out of money. A reasonable withdrawal rate can help you sustain your SWP for long periods and also result in capital appreciation. Once you have substantial capital appreciation, you can increase your SWP rate incrementally according to your needs.

Source: Advisorkhoj Research

Conclusion

In this article we have reviewed the performance of different systematic investment options in Principal Emerging Bluechip Fund. Systematic investment options help you remain disciplined, take advantage of volatility, generate regular cash-flows and most importantly, help you create wealth over long investment tenures.

Principal Emerging Bluechip Fund can provide good investment opportunities in current market conditions through any of the three systematic investment modes i.e. SIP, STP and SWP depending on your investment needs. As discussed in this post, we have seen that the scheme has a great long term track record. You should consult with your financial advisor if Principal Emerging Bluechip Fund is suitable for your systematic investment needs.