Mutual Fund

India’s online search for financial services and products grows 4 times in three years

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India’s onloine search for insurance, pension products grows 4 times in three years | Business Standard.

India has the third largest base of internet users in the world, with a growing ‘digital high value’ consumer segment. According to a research report by Aviva and IMRB (Indian Market Research Bureau), India’s online search for financial services has grown four times in the last three years.

The survey was conducted across customers living in top 8 cities with annual incomes of Rs 6 lakh and above. These are customers who use internet atleast once in two weeks and have purchased a life insurance policy online in the last one year.

According to the report, almost 13 million searches a month are related to insurance. Within the segment of insurance, most internet users researched about retirement and pension related products.

The report further elaborates that some while some people research for financial products online, most of them still end up buying products offline. Reason: Offline mode of buying insurance is driven by assurance resulting in better credibility and perceptions.

Maximum sales of life insurance still happens through the offline mode. For instance, over 65% of the internet users bought health and life insurance products offline.

While the traffic of internet users is increasing year on year, what is stopping them from actually buying products online? According to the survey, physical absence of an agent holds back most customers in buying the product online.

Additionally, insurance being a complex product, customers feel it is important to have an agent explain the product or insurance policy. 21% of the internet users opine that, they avoid buying an insurance policy online because they don’t know the claim procedure. Reason: If you buy a policy offline, your insurance agent will act as an intermediary and help you in settling your claims

However, one should know that an insurance agent will only push product of a single company. hence, its important you do your search online, compare products and buy products accordingly.

Still, these are customers who contribute one third of their savings pool online. Additionally, some 27 million professionals hold a disproportionate part of the savings pool online.

 

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Mutual Fund Investment: (Systematic Investment) SIP or Lump sum?

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Mutual Fund Investment- SIP or Lump sumThere have always been a debate on which is a better way for investment in Mutual Fund – Lump sum or Systematic Investment Plan (SIP). Actually the answer to this is not easy and it depends on the time frame we are looking at. There have been some phases where SIP has outperformed while at other times lump sum investment has done better. We have picked up 5 different situations of Indian Stock market since year 2000.

Here are some Assumptions:

  1. Rs. 60,000 is invested in both lump sum and SIP and is used for buying SENSEX.
  2. Since the cash flow structure for the two is different, to make it comparable we assume that SIP investor puts the entire amount in a debt fund and starts systematic transfer plan (STP) to the equity fund.
  3. The above debt fund gives a return of 8% per annum.

Market Phases:

Dec 2007 – March 2009 – Constant Declining Market

SIP vs. Lump sum - Constant Declining Market

SIP vs. Lump sum – Constant Declining Market

The loss in case of SIP is lower than Lump sum investment. So SIP wins in case of Constant Declining Market.

Jan 2005 – December 2007 – Constant Rising Market

SIP vs. Lump sum - Constant Rising Market

SIP vs. Lump sum – Constant Rising Market

Both kind of investment gives good returns, but SIP would never be able to beat Lump Sum in case of Constant Rising Market. So Lump Sum wins in case of Constant Rising Market.

January 2000 – November 2003 – Declining and then Rising Market

SIP vs. Lump sum - Decline and Rise Market

SIP vs. Lump sum – Decline and Rise Market

SIPs yield the best results if the market falls initially and recovers subsequently. The SIP investor gains because he gets to buy at lower levels.

January 2006 – February 2009 – Rising and then Declining Market

SIP vs. Lump sum - Rise and Decline Market

SIP vs. Lump sum – Rise and Decline Market

If the market rises initially and then declines sharply, the SIP investor will suffer bigger losses than lump sum investor.

August 2011 – August 2012 – Volatile Market

SIP vs. Lump sum - Volatile Market

SIP vs. Lump sum – Volatile Market

The SIP route works well in volatile market, especially if the market breaks out and rises. The lump sum investor would gain too but marginally.

How to use the above information?

If you check Sensex since 1988, you would find that markets are volatile most of the time and remains flat. So its good idea to invest through SIP. Whenever the market corrects sharply and becomes under valued, you should invest some amount in lump sum. This would give a kicker to your portfolio.

Conclusion:

The question which should be preferable mode of investment in Mutual Fund – SIP or lump sum? The answer is it should not be SIP or lump sum but SIP and lump sum. Keep a regular SIP investment in MFs and top up your investment with lump sum when the market falls.