Apply this SIP trick to increase your mutual fund returns over 1.5 times, complete analysis inside!

Many investors investing in stocks have used this strategy many times and found it to be a suitable and easy way to accumulate and increase profits.

If you are investing in mutual funds or planning to do so and searching for a strategy to boost returns, then you are at the right place.

Let's straightforwardly observe the returns generated by a plain SIP, or simple SIP, for this analysis. We've taken the SBI Nifty Index Fund Growth as a case study. The investment began on July 1, 2020, with the SIP scheduled for the first day of every month. If the first falls on a market holiday, the SIP date shifts to the next trading day. During this period, the investor made a total investment of Rs 1,44,000 through an SIP of Rs 3,000 per month. The total units accumulated during this time amount to approximately 1,006 units. Based on the latest Net Asset Value (NAV) of Rs 205.56, the current investment value stands at Rs 2,06,726. This represents an absolute return of around 43.56 per cent.

According to a new strategy, plot the 200-day Exponential Moving Average (EMA) on the Nifty50's daily chart. Remember, the market is considered bullish when Nifty is trading above the 200 EMA, and bearish when trading below it. Invest Rs 20,000 when the Nifty falls from its high point and retests the EMA or closes very near to it. The main condition is that the Nifty must be trading above the 200-day EMA (as shown in the image). Ignore adding funds when the Nifty is trading below the EMA and touches it (as shown in the image below). Instead, wait for the Nifty to cross above the 200-day EMA and begin trading above it. Then, wait for it to retest the EMA to invest funds.

During this period, the Nifty almost reached our desired area near the 200 EMA approximately 9 times as shown in the image. On those days, you need to invest Rs 20,000 as a lump sum in the same fund you are doing SIP. The main benefit of this strategy is that during the same duration, you have invested more than 1.25 times the amount you would have invested with a plain SIP, and your average price per unit has decreased using this strategy, which eventually brings benefits in the long run.

Probably a question has crossed your mind: what is the difference between both strategies? Let me clarify. Within the same period, the plain SIP accumulated around 1006 units, while with the 200 EMA strategy you got an opportunity to buy 2610 units. Comparing the average unit price of both strategies, in plain SIP, the average unit price is Rs 143.19, whereas in the 200 EMA strategy, it is Rs 138.4. This difference of Rs 4.79 per unit is significant and will reap more benefits in the long run.

During the tenure, you would have generated a corpus of around Rs 4.81 with the 200 EMA strategy, while with plain SIP, it would be around Rs 2.06 lakh. Looking at the profits, in plain SIP, you would have generated around Rs 62,726, whereas with the 200 EMA strategy, you would be able to generate extra profits of around Rs 94,508 during the same tenure which is around 1.5 times the normal profit.

We have not back-tested the strategy on Small-Cap, Mid-Cap, or Large-Cap funds; however, it may provide significant benefits. When we buy the dip, we purchase at a discounted NAV. Eventually, when it rises, this strategy can generate substantial profits compared to a plain or simple SIP. Furthermore, mutual funds, known for peaceful investing while investing in equity, have the capacity to generate multibagger returns but also involve greater volatility and risk.

Disclaimer: The article is for informational purposes only and not investment advice.