Confusion on starting sip

POSTED BY Rishabh Dubey ON July 20, 2011 2:05 pm COMMENTS (15)

I am planning to start a 5000 sip in reliance banking fund.I am looking for 5-10 years regular investment and will regularly increase this amount whenever I have more money.

Reasons for selecting this fund:- Ya I know its a sector fund and is very risky.But then I have done research.

1- Compared it with hdfc equity(the best equity diversified fund).Even in 2008 when U.S. banks fallen down and recession was all there in banking and finance sector, RBF fallen only -39% as compared to -50% for HEF.

2- After recession it has outperformed all the funds by miles and now has the highest returns since inception,since 3 years and since 5 years.So now when market is looking very good for banking and finance it should definetly outperform.Even if recession comes in this sector I would invest in it regularly as I know after recession it will badly outperform.(I will invest more money if recession comes in this sector).

3-All sectors are directly/indirectly depend on this sector.

4-All major equity diversified funds have there major portion of portfolio(around 15%) in this sector only.

Now suggest me I am going in right direction or not.

15 replies on this article “Confusion on starting sip”

  1. Ankur Lakhia says:

    @ Rishabh,

    I believe couple of good diversified equity funds should be enough, assuming that you wll hold on for long term, say 5 – 7 years. I would go for HDFC Top 200 and DSPBR Top 100. Both have performed reasonably well in the past and serve purpose of taking exposure to India’s top 100 to 200 companies in varying degrees. Of course, there are other diversified equity funds which are also good and nothing wrong in selecting other funds. I think two or three funds should be adequate.

    I can see you are bullish on banking sector. You will get exposure to this sector as part of diversified fund. However, if you want more exposure to banking sector, you can add banking sector fund to the list. However, I would not recommend more than 10% to 20% allocation to sector fund, given higher risk profile. Choice is yours and subsequent profit / loss are also yours. Hence, take your time to decide.

    Hope this helps.

  2. Rishabh Dubey says:

    @ankur seems that u have opened my eyes……tx for your genuine suggetion. Now tell me if I want to invest toatal of 10000 bugs in sip what should be my whole portfolio.

  3. TheZionView says:

    Looks like your so convinced with the research on returns. If 5000 is not a big part of your monthly investment then in every sense you can take the risk of loading your money in this fund.

    But if 5000 is like more than 30-40% of your monthly investment.You might have to think again. The returns vary majorly with the time you choose to compare. Past 7 years have been exceptional (bar recession which we came back good) for indian stock market.

    But you should look broader picture , 7 years is too less a time to give a definite decision on future performance.Like many point out you should be vary of doing it.

    Again if 5K is small part of ur portfolio,,and u dont mind high risk ..you can always take your chances with your money.

  4. Ankur Lakhia says:

    @ Rishabh,

    My thoughts for each of the point you mentioned:

    1. Relatively better performance in 2008 could be due to many things including getting timing right, moving to high cash allocation at right time..may be..who knows…assuming such performance will always repeat in future is not prudent.

    2. Please understand that banking is highly leveraged business in the sense that it entirely works on money borrowed from one set of people and borrowed by another set of people. You have considered performance of last seven years for your “research”. Interest rates were lowest in generation in year 2003 and started rising slowly from that year onwards. The way it works is like this – when interest rates start rising, borrower can absorb it initially. For example, home loan EMI can go up little bit or loan tenure get extended little bit etc. This can happen up to a point but beyond that borrowers can not absorb it any further and then NPA start rising & sector performance start getting affected. So, when you think with this background, you can realise that performance of past seven years may not necessarily repeat in next seven years.

    3. No. Other sectors do not “depend” on banking sector. They “use” banking sector. How does this ensure that banking sector will always outperform other sectors?

    4. Diversified funds might have good portion of their assets in banking sector. However, when prospects for banking sector changes, they are free to reduce their exposure to banking sector. Howeve, sector fund can not do that.

    Look, it is your money and you are free to do whatever you want to do with it. But, if you ask me I would suggest you to select couple of good diversified equity funds instead of relying on some superficial “research” you did yourself.

  5. Rishabh Dubey says:

    @ramesh since inception RBF has given 33% returns then 22% returns from HDFC equity fund. Dont u think its a huge difference?

  6. Rishabh Dubey says:

    @ ya I have compared it on moneysights and I have found that for yeach year RBF’s return is more than HDFC equity fund.

  7. Rishabh Dubey says:

    @ramesh —–very well said but when I am seeing for past seven years in each and every year diversification in this particular fund has outperformed the diversification in all sectors why I will chose the overall diversification.If it would be 50-50 (that for 2-3 years RBF has done good and for 2-3 years HDFC Top 200 has done good) then also I would go for HDFC Top 200.

    Give your logic too.

    1. Ramesh says:

      Just compare the SIP return from the inception month of reliance banking fund versus hdfc equity. period.
      my logic- nobody knows about the future.

  8. Rishabh Dubey says:

    @jitendra its not about risk dear, when in 2008 this particular sector was on fire then also RBF has given not much loss(-39%) as compared to very safe HDFC TOp 200(-45%).Leave the time when this sector was good(it has outperformed HT200 by many miles).
    I just want to say if a particular sectorial fund has done good when its particular sector was very badly on recession and in the worse case if recession again comes then also it will secure less loss than other diversified funds.

    Give me your logic too, I would be more than pleased to not to invest in this particular fund if I would get good reasons.

  9. Rishabh Dubey says:

    @ramesh —tx for your suggetion but i have found out that diversification is better than putting your money in one company.Its like putting your all eggs in one basket, so in financial sector too if my money is been diversified in various companies i think I will make more profit when this sector goes up and less loss if a particular bank is on loss. Moreover there are 4-5 new banks are also coming up to challenge the old ones so if RBF’s manager(which knows much more about banking sector)think right he should buy them and make more profit.I cant do those all thing and moreover I want to be in peace.

    Anymore suggetion, is most welcome.

    1. Ramesh says:

      I mentioned that because of you are trying to do the same thing with your portfolio. What holds true for SBI holds true for the sectoral fund too.
      Nobody knows which sectors are going to outperform in the future.
      Investing in same sector companies is not diversification at all. Diversification is when there are “different” businesses / sectors / asset classes, and those are mutually exclusive.

      What you are trying to do is called Concentration. For long term, peaceful sleep habits, and less knowledge, it is not good.

      You should diversify well. If you want to concentrate, then concentrate completely. A neither here not there combination is not going to help you.

  10. jitendra solanki says:

    Hi Rishab,

    Its very difficult to predict whats going to happen with any particular sector.such a confident mind can break all barriers of stock market.

    The decision solely rest on you and if you have such a huge risk apetite you can surely go forward, otherwise follow the basics as someone said KISS(Keep it Simple Silly)

  11. Rishabh Dubey says:

    @ manish– tx fr ur support. I think 500 bugs make no difference to my whole portfolio.And if you compare RBF to Nifty Bees, RBF has outperformed it in each and every year(You will laugh at the difference of return in each year between these two). So it doesnt make sense to invest in that as both are from same sectors.

    Any other suggetion would be most welcome as I am planning to start it soon.(the sooner,the better).

    1. Ramesh says:

      What prevents you to invest in the representative company of the financial sector, namely SBI?
      If you are so sure about the banking sector, it doesnt make any sense to pay FMC to the MF.
      Just buy SBI like a SIP. There are various kinds of DIY-SIP in the market.

  12. Manish Jain says:

    Rishabh,

    Good to hear that you have done some homework on the product and you feel confident about it. I would suggest instead of Rs. 5000 in one fund, why not the following:

    1. Rs. 4500 – Reliance Banking Fund
    2. Rs. 500 – Benchmark Nifty Bees (Nifty Index ETF)

    I feel it’s always good to have an index tracker in your portfolio.

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