Thursday, December 3, 2009

Rs.100 SIP in SBI Magnum Contra

Mr.A asked :
Dear sir,

Thank you for your great advices.
Your blog is doing a great service to the Mutual Fund Investor Community.
Recently SBI Magnum Contra MF allows inverstor to invest in this fund through SIP of Rs. 100. Is it okay if I start investment Rs. 250 per month for next 10 years in this fund? If I opt for SIP of Rs. 100 or below Rs. 500, I will have to continue SIP to Magnum Contra for next 5 years. It is mandate from AMC. So I have no way to change my stand after one year if I invest Rs. 100 per month in Magnum Contra. I can reduce SIP tenure from 10 years to 5 years at best.

Dear A,
Yes, you are right. SBI has recently has launched a Micro SIP called Chota SIP for as low as Rs.100 per month and the investment period of SBI Chota SIP would be minimum of 5 years. Currently SBI Chota SIP allows to invest in SBI Mutual Fund’s Magnum Balanced Fund, MMPS 93, MSFU Contra Fund, and SBI Blue Chip Fund and later on this plan would be extended to other schemes as well.
There is nothing wrong in planning for SIP for a 10 year period but not in one fund. You might find later on say after a year or so that the performance of this fund is lagging compared to others and might want to invest through SIP in another fund. Initiate SIP for one year and review after that. If satisfied, u can go for a further one year SIP. In my view u should opt 3 SIPs of 100 Rs. each on 3 different dates in a month for ur investment in SBI Contra fund. The split SIP `ll provide better averaged cost to u. Note, that for a SIP of Rs.100, you need to invest for a minimum of 5 years. Also, there is no need for you to submit your PAN Details, just your ID proof is enough.

Do not let the name mislead you, SBI Magnum Contra is more of a Diversified Fund and is a good investment for a time horizon of 5 years or more.
Inspite of frequent changes in the Management Team of the Fund, the performance of SBI Contra has been impressive. The Fund has consistently beaten its Benchmark and Category Average handsomely.

You can consider investing in the Fund.

Even though the AMC states that you will have to invest for 5 years minimum, it is your will and wish to stop the sip anytime if you feel that the Fund`s performance is not upto your expectations. However, for redemption, admissible exit loads will be applicable. Do review the performance of all your funds every year or so.
Best of luck,
Srikanth Matrubai

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