Should I continue my SIP in HDFC Top 200 Fund for long term

HDFC Top 200 Fund is the most popular large cap equity mutual fund scheme in this country. It has nearly Rs 12,500 crores of assets under management. The fund has given in excess of 20% compounded annual returns since inception. However, the fund has been trailing behind its peers for the last 3 years. In the last one year also, the fund underperformed relative to its top performing peers. It gave negative 19% return. Having said that, it is important to remember, short term underperformance can be caused by a variety of factors which may not be relevant in the long term. In our opinion, for a long term investor, the long term track record of a fund manager should be the primary criterion for selecting funds for one’s portfolio. We have numerous examples of top performing funds slipping in terms of performance and then bouncing back. HDFC Top 200 fund is managed by one the most well known fund managers in India, with a strong long term track record of wealth creation. One can certainly be hopeful that the performance of the fund will pick up, once we see recovery in the economy and market. However, you should monitor the performance of this scheme relative to other top performing large cap funds over a period of time and make suitable adjustments, if required.

With regards to the next part of your question, as to the merit of investing through monthly SIP versus making an equivalent lump sum investment every three months, the power of compounding works in favour of the SIP, because your money is invested longer in a monthly SIP. Theoretically, the strategy of investing in lump sum every three months will work better than a monthly SIP, only if you are able to find a deep enough correction every 3 months. However, this will not usually work in practise for the following reasons. Firstly, you may not get a deep correction every three months and you may end up investing at a higher cost. Secondly, purely hypothetically, even if there is a deep correction every three months, you may be constrained by your ability to react. You will not know in advance on which day the market will fall sharply. Even if you know that the market has fallen sharply on a particular day, you may not be in a position to react because you may be busy with other work. Thirdly, even if you manage to invest when the market has fallen sharply on a day, if the market falls further the following day, you will regret why you did not wait for another day. What we are trying to say, lump sum investment involves an element of trying to time the market, which is extremely difficult even for expert investors. On the other hand, if you invest through monthly SIPs, you have a greater probability of catching lower prices, simply because you are investing at a quicker frequency. Further, SIPs help you stay disciplined and frees up your time that otherwise would have gone into tracking the market and executing mutual fund transactions. However, if you have the bandwidth and expertise to follow the market, what smart investors do is that, in addition to their ongoing SIPs, in volatile market conditions they set aside a portion of their excess funds to tactically increase their asset allocation in equities, whenever they get a sharp 2 – 3% correction in the market.