In this blog, we’ll delve into a unique approach to ETF investing that could help you grow your wealth steadily. This guide will walk you through creating a personalized SIP (Systematic Investment Plan) using ETFs with an added twist that can enhance your returns.
SIP
SIP, or Systematic Investment Plan, is a popular way to invest regularly, typically in mutual funds, where a set amount is automatically deducted from your bank account each month. This approach is ideal for those who want a consistent investment routine without watching market fluctuations.
But here’s where we’re switching things up. Instead of mutual funds, we’ll be focusing on ETFs. And with a small, mindful adjustment to the traditional SIP, you can potentially increase your returns significantly.
A Simple Twist on SIP: The Daily ETF Strategy
Step 1: Setting a Daily Alarm
Start by setting an alarm on your phone for 3 p.m. on weekdays (the stock market is closed on weekends). This alarm serves as a daily reminder to check the market’s status and the performance of your chosen ETFs.
Step 2: Selecting Your ETFs
Choose at least five ETFs to diversify your portfolio. Here are a few you might consider:
- Nifty Bees – Provides exposure to the entire Nifty 50 index
- Bank Bees – Focuses on leading banking stocks
- FMCG ETF – Invests in fast-moving consumer goods companies
- Midcap ETF – Targets mid-sized, growth-oriented companies
- Gold or Silver ETFs – These hedge against stock market volatility
Once you have selected your ETFs, add them to a watchlist for easy daily monitoring.
How the Daily ETF Investment Works
With this strategy, divide your monthly investment amount by the number of trading days (typically around 20) to determine your daily investment. For example:
- Monthly Investment: ₹20,000
- Trading Days: 20
- Daily Investment: ₹1,000
Each day at 3 p.m., follow these steps:
- Check the market and identify the performance of your selected ETFs.
- Find the ETF with the most significant price dip that day.
- Invest your daily amount (₹1,000) in the ETF with the lowest price.
This approach ensures that you’re consistently buying ETFs at relatively low points, averaging out the cost over time for potential growth.
Why ETFs Over Individual Stocks?
ETFs spread your investment across multiple stocks, reducing the risk associated with any one company. For example:
- Bank Bees ETF offers diversified exposure to top banks like HDFC, ICICI, and Axis Bank.
- FMCG ETF includes stable consumer companies like Hindustan Unilever and Dabur.
Investing in sector-specific or broad market ETFs helps you capitalize on sectoral growth without the risk of single-stock investments, making it suitable for beginners and experienced investors alike.
Balancing Risk with Gold and Silver ETFs
Adding gold and silver ETFs to your portfolio can stabilize returns, especially during market downturns. While stocks can drop significantly during a correction, gold and silver generally remain stable or appreciate, offering a counterbalance to equity risks.
Sample ETF Investment Strategy Based on Age
Your risk tolerance may vary depending on your age and financial goals. Here’s a common rule of thumb: the 100-age formula. Subtract your age from 100 to determine the percentage of your portfolio that should be in equities. For instance:
- A 30-year-old might keep 70% in equity-focused ETFs and 30% in bonds or safer investments.
- A 60-year-old could allocate only 40% to equities, keeping the rest in low-risk options like bonds or gold ETFs.
This formula is adaptable based on your comfort with risk and market volatility.
How This Strategy Boosts Long-Term Returns
By investing daily and purchasing ETFs during dips, you accumulate more units at lower prices, enhancing your potential gains as the market grows. Over the long term, midcap and small-cap ETFs have often outperformed the general market, making them excellent choices for investors looking for higher returns.
Example: Tracking Returns
For instance, if you invested in small-cap ETFs in May and held them until October, your returns might surpass those from a typical Nifty ETF. Historically:
- Small-cap and mid-cap ETFs have yielded higher long-term returns due to their growth potential.
- Nifty Next 50 and sectoral ETFs, such as IT and FMCG, can also offer higher returns compared to a broad-market ETF like Nifty Bees.
This approach allows you to accumulate units at lower prices, setting you up for significant gains when the market trends upward.
Final Thought
This unique SIP strategy with ETFs is a powerful way to build wealth with minimal daily effort. By dedicating just five minutes each day to monitor your selected ETFs, you can create a strong, diversified portfolio that grows over time.
Note: To get the most accurate and up-to-date information, you may want to consult with a financial advisor.
