Numbers Speak !!
Today we will see some characteristics of SIP (Systematic investment plans) . this is first part of this article , we will have part 2 of this as well where we will discuss other important things about SIP .
Assumption : We are assuming that investments were started from year 2007 , It has both a part of Bull markets and Bear market , So i chose that time frame .
Let us first see an example where investment was made in NIFTY ETF’s . There are two friends Ajay and Robert . Both of them want to invest Rs 50,000 in markets with 2 yrs of time frame in mind . Both of them do not have that much cash in the start .
Robert believes that Markets are in Bull run and hence it has good chances of Capital appreciation . He does not want to miss this chance and decides to borrow money on loan from friends and family or personal loan and invest it . stWhat are his Characteristics at this point . Its just like any normal , average investor , where investment decisions are based on emotions , without foresight and too narrow . They do not understand the cycles of market and they do not understand that markets moves up and down in every time frame .
On the other hand Ajay is an informed investor and does understand cycles of Market , He knows that markets run from up to down and the bull market which started in 2003-04 has already run a long way and can turn any time now . He understands that its a better idea at this point to not get into debt to invest in stock markets . He controls his Greed and will invest only what he has . He also decided to invest 50,000 in 2 yrs . but a small amount month by money systematically .
Now lets see the capital appreciation which happened for both of them .
Summary :
Robert invest full 50k in the start around Jan 2007 with 2 yrs of time frame . Ajay also decides to invest the same amount but he breaks it in smaller chunks and wants to do it using SIP on his own .
Monthly Investment Growth in NIFTY ETF from Jan 07 – Jan 09 for Rs 50000
Lets look at what happened ?
Markets continue to rise and Robert sees his investments grow from 50k to 75k within a year . Ajay also sees his money grow to 35k , on an investment of 25k . If you see at this point , Robert has made very great returns on his investment compared to Ajay . But after that see what happened . Markets started going down and investment of Robert kept coming down with markets and at the end it was at 35k . With Ajay it was a different case . His investments went up and down both sides and finally ended at same point at 35k .
What is Drawdown ?
Drawdown is the drop in the value of investments from its High . If 10k investment go up to 15k and then fall back to 12k . The drawdown is High(15k) – Lowest point after that (12k) = 3k , OR 20% drawdown .
Things to notice
Roberts Portfolio : You can see the behaviour of Robert’s investments . It was too volatile . You can see it going up and down and here and there . I am not saying that it didn’t move and made profits , It made good profits at one point of time , but Robert must be smart enough and courageous to take his profits even if markets are going up and there are chances of making more . People who want “more” and “more” , eventually not even get “what they had” . Have a target and BANG !! , once it moves at that point , be unemotional and take the profits . Markets is a place where money is flesh and everyone is Vultures . If you leave it open for a long time , It will be taken by some one of other .
The other thing is Psychological issue . Because investment moved so high , and then so low , Robert must be feeling bad and too conscious . He must be regretting a lot on not taking the profits . This has bad effects on investment decisions .
Roberts Drawdown : His 50k goes up to 75k (high) and then it moves down to 38k . Draw down of 41k which is 49.3% , this can have devastating affect mentally , as one sees his investment grow to 75k and then drop to 38k and finally end at same point 38k after some volatile movement up and down .
Ajay Portfolio : You can see the consistency of Ajay portfolio . It moved up and up all year whee markets where rising . and once markets started going down and was volatile , his portfolio was also volatile , but not very high , Its volatility was very low and finally it was almost at the same point as in the start of the year . Infact you can see that his portfolio was rising still when Roberts was declining .
Ajay’s Drawdown : This highest Drawdown seen by Ajay portfolio was from high of 39k (20th payment) to low of 35k , which is just 10.25% drawdown . You can get a feel , How difficult or easy it must be for Ajay to see this .
The point here is not Who made more money or Lost more? infact you can see that they both were in loss of 12k on an investment of Rs 50k , But the journey was not same for both of them . While Robert worked too hard and saw wild swings . Ajay made systematic investment and continuously saw his money go up only with minor drawdowns , which was easy to handle pshcyologically . This is true for any investments weather it is Shares , Mutual funds or ULIPS investments .
Now’s let see and example for the same period , weather these two same investors have made investment in UNITECH . why UNITECH ? I have taken this example because it shows what I want to show , the power of systematic investment . Here both of them are investing Rs 1,00,000 (1 lac) in Shares of Unitech . Roberts invests 1 lac in the start of Jan 2007 , where as Ajay makes weekly investment of a fixed amount in such a way that it adds up to Rs 1,00,000 at the end of 2 yrs .
You can see the behaviour of portfolio for both of them.
Robert
Investment : Rs 1,00,000
Mode : One time investment
Final Value : Rs 9,000
Time frame : 2 yrs
Drawdown : 91% (Rs 1 lac , from high of 1.1 lacs to low of 10k)
Ajay
investment : Rs 1,00,000
Mode : Weekly investment (weekly SIP by self)
Final Value : Rs 42,000
Time frame : 2 yrs
Drawdown : 70% (28k, from high of 40k to low of 12k)
Weekly Investment Growth in UNITECH from Mar 08 – Feb 09 for Rs 1,00,000
Conclusion :
Now the main question ? What is good One time investment or SIP ? The answer is both are good inp different conditions , and it depends on your Risk appetite too . When you don’t have clear indication of trend and are not sure where markets can go , the best idea is to invest through SIP . That will save you from volatile markets and small down moves too .
SIP will definitely miss out on returns in BULL markets . But it will work best in Volatile markets and falling markets .
SIP is not a way to avoid losses , its a way of investing, where you feel more disciplined and average your cost of investment of long term . The examples i have taken were biased because of the idea i wanted to communicate . Anyone who did one time investment in 2004 would have made more money than someone with SIP , till 2007 at least because of the rising markets .
You must have seen in first example that Ajay’s portfolio was at 35k in the start of 35k , and even at the end of 2009 , it was at same point even though markets fell from 20,000 levels to 10k levels and was too volatile ,there comes the power if SIP (the money you pump in fights the falls in markets at least) .
Part 2 : This is first part of this article , we will have part 2 of this aswell where we will discuss other issues and things regarding the second example we took (UNITECH)
Request from Readers
If you are on twitter , try to post this article there , so that your friends can read it . I also have a small complain from my readers . please recommend this blog to your friends and any one you know and needs it . I feel this blog needs more readership and deserves too . You can help me promote this blog to others , please pass it on to others . Thanks
Also , why dont you guys and gals leave me messages and comments , please put your comments with your views on article and your own ideas, I should also get chance to learn from you all , dont I ?
Read continuation Part 2 of this post here
Manish
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{ 61 comments… read them below or add one }
Sir,
I hv been a constant visitor 2 yr blog and find yr articles superb. Pls keep it up.
Regards
Nihar
Thanks Nihar
I am glad people like the article .. Keep coming.
Cheers
manish
Manish,
Idea of SIP is good. One important thing is that, leaving few situation, a salaried employee can only go for SIP. He is left with the money, after his monthly expenditure on home, and other things. That is the only option he has, whether he likes it or not.
I really dont know how many people have lumpsom money (if they are working and depening on monthly salary) to invest. Suppose I am left with 10k per month to invest, either I do it monthly or wait for some time to invest lumpsum. So practically, in bull market, it is better to invest as early as possible, in bear market, the person can wait for sometime if he is sure or keep investing as it brings down the cost of investment, in voilatile market, it is anyway good.
I feel that it is the only option letf to people like me whose source of income turns out to be monthly.
For lumpsump investment, in bull market profit booking becomes very important. In case of bear, he is gone to the extent of the downfall and becomes forced long term investor (true for most people who wanted to earn quick money, but lost heavily).
It has been very refreshing reading your article on investment.
Three cheers to you.
Anoop
@Anoop
I think the best thing for an average individual is to go for SIP . and this must be done with a long term time horizon .
In long term there are many cycles seen by markets , markets are up , down and sideways , all of them .. So if someone wants to invest without considering whats happening in markets , SIP is the key …
Keep coming back .. we have lot of great articles coming along .
Manish
Hi Manish,
Another great article from you. I am reading your post for almost 7/8 months now and finds it very informative especially for a new comer like me.
Everyone keep saying that it is better to be a longterm investor, which i am. But the only concern is how long it should be. or is it that you just put expample 1 lac now in some good shares and leave it untouched for another 5 yrs and encash them after 5 yrs. It will be great if you can write on this topic as well (when to encash your investments especially if it is share market related).
Shall recomend to my friends, ofcourse. Such nice articles needs more readers, i do agree.
Anu , First of all thanks to you .
Long is atleast 5-6+ years . Any appreciation happens only after it is given some time to it . Today’s market conditios are so good to invest for 5+ yrs that you will not get this chance in next 10 yrs atleast . Each great company is available at great valuations at this point . Reliance is one example . one can invest in it for next 6 months a fixed amount every month because it would be volatile for some time .
I will try to write something on this topic . No promises but .
Manish
Hi Manish ,
1) i had heared that in SIP we can't withdraw money after completion of 3 years lock-in period,
ex: if SIp taken in 2006 Aug , then in 2009 aug is it not possible withdraw full units of amount
only amount invested in 2006 aug can take in aug 2009 , similarly Sept amount in sep2009 .
is it TRUE ?? if it is what is use?
2) wht about Mutual fund, in this lock-in period is 3 years, if at a that point of time
NAV is low then we can stop withdraw amount and can take when NAV goes high
@Abimanu
First thing is that may be you are confused with the terms a bit .
SIP is just a way to invest monthly, not a product .
ELLS are the category of MF where you have 3 yrs lock in and they are for tax saving .
Coming to your doubts
1. You are talking about SIP in ELSS . Yes each payment will be locked for 3 yrs .
Whats the use ? If you are ready to first save all the money and then invest in one go ,so that you get it back in one go at the end of 3 yrs , you can do that . But it will work out to be same .
2. This question was result of confusion i beleive , ELSS have lock in period of 3 yrs , during that time you cant do anything . After that you can take decision of selling it or keeping it . depends on you .
Am i clear ? Are your questions answered ?
Manish
Hi manish ,
Thanks for info,
But my doubt is not clear
in SIP through ELSS investment is made for 3 years
i.e after completion of 3 years , can i redeem total units ,
or only units alloted in First month will be redeem ,
yes,i am confused about this
@Abimanu
if you see my first comment , i clearly say that "each payment" will be locked for next 3 yrs. so anything paid in Jan will be available in Jan after 3 yrs , Feb in Feb , like that ,
Its ok to do SIP that way and get money in parts , rather than first wait to save all money and then put , you will anywyas loose time .
And SIP is recommended as it will help you ride the volatility .
Manish
Manish
dear manish,
i am a great fan of ur writing style as well as the hardwork and commitment you put in to present your ideas ..powerful and simple..
i am planning to subscribe SIP for my children for next 20 years…would you please recommend a Mutual fund?
I am looking for reliability and returns.
@Manoj (mash)
Thanks for your words , You can start SIP in some good Equity diversified mutual funds (may be 3-4) . You can go for ELSS funds as it will help you save tax and its lock in period wont hurt you as you are doing this for long term (incase your 80C is not exhausted) .
Some good funds i can suggest is (i hate this part)
1. Birla Front line Equity
2. DSPML top 100
3. DSP Equity
4. SBI magnum contra
5. Sundaram select focus
However , its you disciplined approch towards investing + Asset allocation + Portfolio rebalancing is what matters , no the fund selection .
If you concentrating too much on fund selection , you are focusing at wrong place
Manish
Dear Manish,
Hope you are doing fine, actually i would like to clarify some of my doubts and required your help for my financial planning. Actually i m a married person age 27years my monthly salary is 60 K. i had a LIC policy of 7 Lacs coverage for which i m paying around 35 K yearly. I understand that i require a term plan of around 1 Crore for which i m planning and will go for it in one month time.
Now all i want 2 know that i have made sudden MF investment Via SIP….
1. Reliance Regular Saving 1500
2. HDFC Top 200 @ 3000
3. Reliance Growth Fund @ 1500
4. Birla Frontline Growth Fund @ 1000
5. Fidelity Equity Growth @ 1500.
After having all the investment and my monthly expenses i m still remaining with around 15K in my pocket for which i need ur assistance to where to invest do u have some other MF other than the one i invested and could u please suggest the way i invested in MF is right or do i need to make some changes. Other then this i invested 30000 Each in my and my wife PPF Account.
Rishi
I suggest to put your question on the forum : http://www.jagoinvestor.com/forum/
hi manish
thank you for such aprompt reply. i am just looking for a reliable fund with good track record. My idea is to start with a copus of 50000(one time ) and therafter rs 1000/ per month. i hd sbi magnum contra in mind…
children are 4 years and 4 months respectively…idea is that they have some money when they turn 20.please point out observations if any.
regards
manoj
@mash
SBI contra is excellent fund with 26% CAGR return since inception . You can look for funds like these for long term wealth creation . make sure you do it for long term and dont get carried away for short term .
http://www.valueresearchonline.com/funds/fundperformance.asp?schemecode=633
I would not recommend to put lumpsum . The better thing would be to invest that lumpsum in a liquid fund and use STP to invest everymonth .
Manish
Hi manish
nice article Do you have any link where you discussed SIP vs VCA( Value cost avereging) type investment. Some times back i did the same but presently i have only SIP as the none of the MF provides VCA method of investing.. Few days back one my friend told m e some fund have started VCA method of investing.. Can you are any one here tell me exactly which fund is providing VCA method of investing??
Thanks Nowdays i am enjoying your articles…giving 1-2 hrs daily to read.. nice keep it up
Ravindra
I havent Discussed it yet .. but i plan to discuss it soon
. please wait 
manish
Dear Manish,
You are such a star! and i cannot thank you enough for educating us in such a simple and open manner. I am really grateful to you. I discovered your site about 7-8 days back and am just glued to it. Have already emailed your link to all my fam and friends. I am sure they will take benefit of it.
Thanks once again and best wishes always. Dil se…
Shefali Bajaj
Shefali
I cant be more glad to receive such a nice appreciation mail
. have a look at other articles from http://www.jagoinvestor.com/archives. I hope to see more participation from you on the articles here.
Have a nice day .. shoot me an email for any queries .
Manish
hi manish,
it is really refreshing to read all the articles from ur blog regarging investing. i am a housewife, but i really save my time to read all the articles so as to get knowledge on investing. Thanks a lot.
Kavita
Nice to hear that , let me know if you face any questions .
Manish
manish,
really gud article.. so plz suggest me is this right time 2 start sip … boz market move up side .. any time will com down … i am very confuse ..
plz suggest me some equity m.f..
kumawat_ronak@yahoo.com
Ronak
SIP is there because we dont want to time the market .. anytime is good for SIP , its there to obsorb the volatility
Manish
Yes Sip is only one way to reach your Goal.
sumanta
Thanks for comment , would like to hear your views on SIP more .
Manish
Hi manish ,
I want to start sip in following mf (sbi )
1.Magnum Balanced Fund
2. Magnum Multiplier Plus 1993
3.SBI Blue Chip Fund
I need ur valuable advice …. Is it balance portfolio
My current investment in
Reliance regular saving . G @ 25k
Uti master share G @ 30k
Ppf @50k /y
manish ,
waiting 4 reply bossssssssssss
Raj
Looks good . however I would encourage you to analyse things yourself , there are enough material on the blog now .
Manish
plz booosss
suggest me out of 3 for start sip …. which u w’ll per-fer me …
waiting 4 reply sooooooonn plz …
Hi Manish,
This is one of the finest and worth reading article. One question on this.
I just saw SIP calculator that you have in your ‘Calculators’ section of this website(http://www.jagoinvestor.com/calculators/html/SIP-Calculator.html).
Can one use it for the investment SIP he does in Mutual funds per month through SIP route ? Will it be a correct way of calculating the future value(specific to MF invest. per month). Please advice
Amol
Amol
yes , you can use it , i have created it for that only
Manish
Hi manish,
this is my first comment on this blog. Read few articles and they are excellent and informative.
With MF using SIP makes sense however would like to know your thoughts on VIP(Value-averaging investing plan).
thanks
Milind
Milind
Thanks
. VIP is a new concept and looks promising in most of the situations , however there is no guarantee that it will outperform SIP in all the cases . You can try our VIP . Dont over judge it .
Manish
Manish,
As read on ur blog , we can miss out the profits on bullish market, how can i decide in my case whether to switch over to other fund or continue.
I have invested in HDFC top 200 as sip since last four months and started it as long term investment for my child’s education. following are four NAV
April – 184.44 5.42
May – 175.860 5.68
June – 192.23 5.20
July – 199.11 5.02
Now the markets seems to be bearish, so should i switch over or continue keeping long term in mind ?
Hitesh
Its a tough thing to answer , it takes a lot of experience and effort to find out when you should switch .
So if you feel its bearish , its fine , but it can keep going up for more time and you might regret the decision , its all risk
Manish
Thanks for the quick reply
Hi Manish,
I have some question while investing in MF.. I think i have read all article related to SIP but still one question i have and for that i need ur advice .
I have not invested anything in MF till now and very new to this.
Actually i want to know which way is better via sip or via manually by seeing the market. Not totally relying on market but like for eg. yesterday i saw the market was high and if i think to invest it after some days when it will go down atleast sensex come on the average level. I am not good to understand the market but atleast i can see the sensex and then invest. For all months i if i follow the same way then i think it will help me to give good returns .
Please let me know if am thinking in right way or there is any problem in it…
Mahesh
Investing directly takes a good amount of understanding and comes with years of understanding and experience , atleast some good months , So if you are ready to learn , why not .. go ahead and try to see if you can do it with yourself .
Manish
Thanks Manish for the advice. Also saving into MF manually will have little bit flexibility like if I am not able to adjust a specific monthly amount this month then i will adjust it in next month
Thanks again ..all you articles are really helpful and i have started educating my self more and more in it.
Mahesh
Just make sure that doing monthly investments brings in Emotions and people tend to start timing the market . Dont let it happen, rest all is good
Manish
Manish,
Then in SIP case i agree we will not have to see the market at all but what if whenever our monthly amount is deducted and unfortunately every time market is up then i think it will surely give me less return ..Right ??
Right
But do you think this can happen for several months or years :0 . think from 2-3 yrs point
Manish
Manish,
so daily i can take out 10 mins at least to check the market. I am not sure if i will go the way i am thinking but 90% via SIP only ..he he ..thanks for your advice. I have a big question for my LIC policy but will ask on your Jeevan Tarang article.
Yes i think i can because i am a Network Engg and continuously on laptop and always online as internet is
Thanks for your help & God bless you.
Hi manish
Can you let me know how STP works…any article on STP..
regards
manish vaid
Manish
You name it we have it : http://www.jagoinvestor.com/2010/03/what-is-systematic-transfer-plan-stp.html
Manish
Hi Manish
I once had a glance of this page mid last year. I thought visiting this page again to get an advise and forgot the address obviously because of not coming back again and did a lot of search to get this back. One cannot stop appreciating you once went through your article. Now, I need advise!
I got 2lakhs of amount recently and I want that to get multiplied but not aware of the recent market and mutual fund trend. Thinking of national bank FD but was not happy seeing the interest rates, ofcourse, that is safe and secure but my appetite is little more. Family is insisting on FD even me too as I am unsure and illiteraete about MFs and the market rates but I want something more. Planning to put that min. 5 years..so can you advise me the secured MF otherwise I would go with family.
Thanks in advance and appreciate your effort in responding to all queries.
Prashant
From your comment I can make out that you would be comfortable with 2-3% more than FD for short . So given the current market situation you should not get into equity , right now you can invest in debt oriented funds which will have 15-25% in equity , so invest in UTI Mahila unit scheme on your wife/mothers name (women only) and and some part in FD (for 1 yrs) . Once markets fall in 6 months/1yr/2 yrs (you dont know when it happens) , but when it happens , muster all your courage and when it seems the worst time , just go and put all the money in equity mutual funds and then wait for next 2 yrs , I can see money doubling in 5 yr (thats 14-15% return overall)
Manish
I want to make my good Portfolio but do not have any idea where to invest. I can say my monthly income approx 50K
my investment
the endowment assurance policy — 9384 /Year
Jeevan Saral Pno 165 — 30025 /Year
SBI Horizon II — 12000 /Year
If i do not have my own choice would you able to suggest me how can i make a good financial Portfolio
Sanjeev
The best thing would be to get rid of all the junk things you have collected right now and do goal based investing , you need to hire a financial planner incase you are not interested in learning and want it fixed asap
Manish
hi Manish,
I would like to invest Rs 50,000 by march 2011 for tax saving and it should be for short time about 3 years max 5 years.
Kindly advice for investment plans.
Thanks
Ketan
Ketan
You have options like ELSS , ULIP’s and Bank FD’s as their locking period ranges from 3-5 yrs . Make sure you understand the kind of returns you can get out of these .
Manish
Hi Manish,
I have invested 1,60,000/- in 8 different tax saving Mutual Funds in 2007 and 2008. So far i have accumulated more than 40,000/- as dividends from all the 8 funds. Recently I have calculated the number of units I bought and the current NAV, to my surprise the current market value is 1,26,000/-. Should I keep them or sell? I am an average investor and my knowledge in money market is poor. Please suggest.
Santosh
the dividends you get from MF are your own money which is paid back to you ,. and then NAV is decresed by that much quantum . So i think its fine .. the markets have not done that well in last 2-3 yrs as a whole , so dont feel bad .. its normal
Manish
thanks 4 dis article…a very well explained one ,as SIP was earlier greek to me….
Thnx again
Saurabh
Nice to hear that
. Keep coming
Hi Manish,
As i’m new to this SIPs , i have a question in my mind. i started investing 5000 rs in SIP Hdfc top 200, Lets suppose down the lane 3 years if this MF is not working well( as a newbie , blindly following stars in value research) , then what i can do. Can i stop paying SIP premiums or withdraw the amount? but withdrawing is not the case as i am looking for long term (20 yrs).
Please let me know what is the procedure to change to other MF if current MF is not working well.Thank you.
Cheers,
Sravi
Sravi
If a mutual fund does not work (which has to be defined will on how to decide that) , then you need to stop it and start a new one . there is noting like “changing a MF” , you have to stop one and start another always
Also you can stop your SIP anytime without any issue after 6 months .
Manish
manish,
i couldn’t go through all of your posts for my question, i seek your help in this regard:
Should we follow any principle/rule while doing SIP in mutual funds, though, we should not try to time the markets:
e.g.
1. If we chose monthly SIP, and NAV is fluctuating during the month, when to buy units?
2. If we chose a particular date of the month for SIP, would it be a right choice?
3. if NAV has gone higher by 50% should we book profits in MF units?
4. if NAV is reducing (market is also going downwards) should we stop buying MF units?
Lokesh
the more longer your duration , the more inactive you should be . thats the rule , so if you are a 5-10 yrs + investor , I would say just start the SIP and then go back at your work !
Manish
hello manish,
i am planning to start SIP for long term (20-25 yrs), i dont know whether it is right question to ask or not, but i want to know the power of SIP, coz i heard from all, that SIP is good for long term, what is the approximate return on SIP for long term ? funds in my mind HDFC top 200, SBI FMCG
please i need your assist.