Rather than betting on individual stocks, systematic investment plans are less risky and offer better returns

 

One share may seem too small an investment to make a meaningful impact on your portfolio's returns. Yet, disciplined investing can add up to a huge amount in the long run. If you bought one TCS share every month since July 2010, your investment would have earned 22.9% returns till now.The 60 shares of TCS, bought at an average price of Rs 1,642 apiece, would be worth Rs 1.49 lakh today. Plus, you would have received . 6,796 in dividends.` The monthly investment would have been higher at Rs 3,215 if you chose to invest in HDFC Bank instead. But the returns would have been just as spectacular. If you bought one share of HDFC Bank every month (increased to 5 shares a month after the stock split in July 2011), you would be holding 300 shares worth . 3.27 lakh. Factor in the Rs 5,748 received as dividend and your total returns are 25.6%.

Impressed by the returns these stocks have delivered? Here's the spoiler. If the average monthly investment in these blue-chip shares was put in corresponding sector funds, the returns would have been higher.

A systematic investment plan (SIP) of Rs 1,643 started in the ICICI Pru Technology Fund in July 2010 would be worth Rs 1.7 lakh today.

Even after factoring in the dividends, the tech fund has given almost Rs 15,750 more than the SIP in TCS. Similarly Rs 3,215 invested every month in the ICICI Pru Banking and Financial Services Fund would have grown to Rs 3.57 lakh today , an additional gain of nearly ` . 25,000 over the SIP in HDFC Bank. The gap is even wider between gains from L&T and the Franklin Build India infra fund. Five years ago, Infosys was among the most highly-rated stocks and almost all analysts had it on their radar. If you had started buying one share of the software giant in July 2010, you would today be holding 228 shares worth ` . 2.23 lakh, a return of a paltry 11.4%. The same amount put every month in the ICICI Pru Technology Fund would have . 3.07 lakh, a return of 23%.grown to ` Even the worst performing tech fund, DSP BlackRock Technology.com has generated higher returns than an SIP in Infosys.

The lesson for small investors is simple. Take the MF route instead of trying to find the next Infosys among individual stocks. Just as you are diversifying your investments across a basket of stocks, diversify across time as well by using the SIP mode. That's the best way to create wealth without losing sleep.

Of course, you can also go wrong when in vesting in funds. If you had invested in the worst performing banking scheme, Sundaram Financial Services Opportunities Fund, you would have earned almost ` . 45,000 less than what investments in HDFC Bank delivered.

In the Kotak PSU Bank ETF, you would have earned only ` . 13,990 in five years. At 2.75%, the SIP returns are less than what your savings bank offers. So, choose your fund carefully.