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POSTED BY ON May 21, 2012 1:38 pm COMMENTS (12)
Most of us only think of SIP as monthly investment in MF schemes. But lately , I think that we can beat volatility little better by investing in MF SIP albeit differently i.e. daily/weekly instead of monthly. Since weekly SIP in equity MF is not allowed currently, we can follow another strategy – Start SIP of 5k in one of HDFC liquid fund (you can do it by using HDFCMF online account) and then started weekly STP of 1k from the liquid MF to any equity MF for e.g. HDFC Top 200 fund. Better option is to park a big lump sum amount in a liquid fund instead of parking it a SB account and register for weekly STP. You get a better return for your money in liquid fund (~8%) compared to your SB acc and also continue equity investment regularly. In the current volatile market, 5k invested as monthly SIP on 20th Apr would have been 4521 one month later but as it is invested as weekly SIP, the value is 4789.
If one wants to invest 5k/month better opt for a SIP of 1k/weekly. Point to note here is that weekly SIP performed approx. 6% better than monthly SIP during the same period. The % here is debatable if the market goes up one month later but this is the performance in a volatile market.
Would like to hear from the members about this strategy given the current volatile market.
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I have another suggestion. If you are so enthralled by weekly option, why don’t you opt for Monthly SIP but get them triggerred on different dates. For example, if you have 4 SIPs get them triggerred equally within a month – 5, 10, 15, 20.. This would have the same effect as monthly.
Another advantage of this mode is that if on a particular date your bank doesn’t have funds, all your SIPs won’t get bounced at the same time.
Regards
BanyanFA
Naveen
To me it looks like this
More Complicated = More chances of “Not a better option” (More chances , not sure shot conclusion)
So just keep it simple . And unless its backed up with proper data and research, one can never claim that !
Manish
Thanks for your replies. I was not aware of the academic papers on this and as justgrowmymoney mentioned in personal exp it didn’t make much difference over last three years. I had just a sample of 1 month in this kind of volatile market.
TheZionView – I too agree that equities should be for 10+ years horizon
But what do think of parking the lum sum money in liquid fund and switching it to equity funds instead of keeping the same in normal SB acc? This was my money is working smartly.. no?
Naveen – Don’t underestimate the power of 0.6% compounding. It just appears smaller.
A Rs.10,000 per month SIP over 25 years at 12% compounded will yield 1.9 crores.
A Rs.10,000 per month SIP over 25 years at 12.6% compounded will yield 2.1 crores which is not an insignificant difference even after 20 years.
I don’t mean the differential incremental values will necessarily persist but a minimal rise in return rates can make significant difference in returns is what I meant.
Dear Naveen, declaring some conclusion for Eq. on the basis of 1 month data is a sure shot way to failure. Regarding that weekly or mly or qtly SIP, please do understand, SIP is only an option to invest systematically & with a discipline. It’s not the end result.
Regarding that Volatility thing, as long as the markets are in a range & remains volatile, you ‘ll notice the result that you concluded. Once there is a secular bull run or secular bear run, the result ‘ll be all different.
Thanks
Ashal
To me this is irrelevant Investments should be made based on goals with conservative estimate. The difference in the returns is not worth the effort. While the last 3-5 years of data might give you differential return for the weekly strategy ,You will not see major difference over a long period of time like 10-15 years .which should be ideal investment period for equities.
Cant agree more. Play the long term game or don’t play.
Excellent answer!
In properly performed academic papers (not some data mining statistics), it has come to light that the lesser frequency SIPs perform better than more frequent ones. So,
quarterly SIPs > (read better) monthly > weekly > daily > hourly.
Also, actually it is better to follow a buy-and-hold approach OR an asset allocation model versus putting your money in debt & do a STP to equity.
Ref:
1. http://www.valueaveraging.ca/docs/DCA%20Investigation%20Study.pdf
2. http://www.valueaveraging.ca/docs/Nobody%20Gains%20from%20DCA.pdf
3. http://www.bogleheads.org/forum/viewtopic.php?f=10&t=83767
I reviewed the research papers and bogleheads forum links above. I was able to see all of them dealt in detail on LS versus DCA (lump sum versus SIP) but at least I was not able to find a place that mentioned that lesser frequency DCAs perform better. It only says that longer the duration of the DCA (SIP) the more it has the potential to under perform LS.
Can you highlight the specific sections in the paper for our benefit?
See in ref 1, pages 22-23, in which they have said that the lower the frequency of DCA, the higher is the return.
@ Naveen – I have previously shared my personal experience in the forum that my weekly SIPs have yielded about 0.6% to 0.73% more over the last 3 years (Example: 6% Monthly SIP return versus 6.6% weekly SIP return etc.). That does not necessarily make Weekly SIPs ideal.
For someone investing in 4-5 schemes and running 4-5 SIPs/STPs makes the total number of transactions to be 15-25 not an easy one to monitor for everyone. AND IMPORTANTLY – Doing weekly SIPs forever is not necessarily a guarantee to beat the monthly returns but as you said there is definitely a better chance of coming out ahead. Also if a STP is not possible for people they can set up SIPs at various points in the month to simulate STP. Instead of 5k monthly on 1st of every month someone can opt for many monthly SIPs as well:
1st June 1000
10th June 1000
18th June 1000
25th June 2000 etc.
Some studies have proved Daily SIP does not work well though in addition to creating an accounting nightmare!