Category: SIPs for Defense

25 Apr 2017
LET YOUR SIPS ROLL, -Systematic Investment plan


The markets have been choppy lately for past four months and are reflecting the drunken movements of a ship in turbulent waters. As always happens in similar times, we have started fielding the familiar questions from worried customers – Is the India story dead? ; Should we get out of the mutual funds now? ; You said I’ll get good returns – see them now; I’m not even getting the FD returns on my investments; or worse – Get me out of these funds before its too late even if I have to pay tax and exit load on them!

This is the same story every time. A large number of investors get into equity mutual funds when the markets are doing well with the avowed aim of investing ‘for the long term’. But the moment there is some volatility, their ‘long term’ perspective becomes ‘short term’ in no time and they get out. Consequently, they get in at high rates, get out in panic at lower rates, and the cycle continues. They almost never get to see the returns that equity investments give in the long run, always maintain that equity should be avoided at all costs. Their long-term ‘real’ requirements suffer due to short-term ‘notional’ losses and they would revert to so-called safe investments of FDs, post-office products and insurance policies which would invariably give them negative post-tax-and-inflation returns, thus effectively eroding the purchasing power of their money.

The Business line newspaper column (Dated 14 June 2015) reproduced below gives out this same theme.

Don’t let market turbulence scare you. SIPs work well only because equity investing is a roller-coaster ride

‘Buy low, sell high’ — lesson 101 for success in investing is really a no-brainer. But for us emotion-driven humans, this cardinal principle is easier said than practised. When the market turns choppy, as it currently has, many of us panic and stop our systematic investment plans (SIPs) in mutual funds.

Don’t make this mistake. SIPs work great in the long run precisely because the equity investing is a roller-coaster ride.

In a SIP, you invest a fixed sum at regular intervals to buy units of mutual funds. The number of units you get depends on the prevailing net asset value (NAV) of the fund at the time of investment; the higher the NAV, lesser the number of units you get. And lower the NAV, higher the number of units in your kitty.

So, when the market and the NAV fall, you accumulate more units of the fund. This results in what is called ‘cost averaging’ — your average cost of acquiring the mutual fund units comes down.

In the long run, despite the volatility during interim periods, equity as an asset class and well-run equity mutual funds should see their values trend higher. Your return will be maximised when the average cost of investment is minimised.

This happens when you buy cheap, making a falling market the best time to invest in SIPs.

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13 Jun 2014
Stopping of SIPs-

Stopping of SIPs

It is a common phenomenon that most of the investors tend to stop their SIPs in mutual funds (and maybe even redeem all the units of some or all of their funds) when markets are on the highs out of fear that they are accumulating units at a high rate and markets can go down any time. Similarly, when the markets go down, they stop the SIPs (and maybe redeem units again) thinking that markets will go down much more and they will start only when the markets have settled or ‘bottomed out’. The article below addresses this behavioural gap of large number of people which prevents them from creating wealth and thus, meeting their life-time financial goals. (Please enable your ‘Display Images’ mode in the browser).


No one can ‘time’ the market and if anyone can, then it will be a bigger business than Apple, Google or Amazon. But, you can, of course, spend time in the market and create wealth. The classic example is Berkshire Hathaway Inc which believes that the holding period of equity investment could even be forever (“Our favourite holding period is forever” – Warren Buffett) and thus Berkshire Hathaway share has became the most expensive stock in the world!

Investors forget that mutual fund SIPs are the best and a proven way to create long term weath for reaching your financial planning goals like retirement, children’s education, family vacation, buying a house or a big car and so on. The benefits of SIPs as you all know are – rupee cost averaging, investment of small amounts in disciplined manner, power of compounding and diversification of risk as you are investing into a basket of stocks.

Based on the feedback we have evaluated the returns of some of the popular Mutual Fund SIP Schemes (remember, this is not an exhaustive list and the names have been chosen based on popularity and recall of scheme names by some of the investors and our research team) from last Sensex peak of 21206.77 on January 10, 2008 to a high of 24068.94 on May 13, 2014 (closing at 23871.23). But, let us first see how the journey of BSE Sensex was during this famous period (highs and lows of each year).

(Absolute returns on the basis of entry at the lowest point to exit at the highest point in respective years including the years when entry was made at the highest point and exit at the lowest point)

As you can see the period was extremely volatile as the returns varied from as low as – 63.70% (negative return) in 2008, – 26.75% (negative return again) in 2011 to as high as 117% in 2009 (positive return). Also, these were the periods when huge number of SIP folios was either closed or further instalments were stopped due to panic. Therefore, the investors could not average out the prices, which is the core of SIP investments. The point, I am driving here is two:-

  1. ‘Not to panic’ as you are accumulating units at low NAV when markets are not in your favour but remember these NAVs gets appreciated significantly when the markets go up. That is how average accumulation price works in favour of the investors if he keeps on investing irrespective of market movements.


  1. It is impossible to enter at the lowest point and get out at the highest point!

Let us now see the journey through of BSE Sensex the following graph –

We will now evaluate the returns of some popular SIPs which were started at the peak of 2008 but were not closed during these volatile periods and are still continuing. Also, let us see how the returns are looking in these schemes when the BSE Sensex hit a new high on 13 May 2014.


As you can see the investors have made positive returns in each of the schemes as they were able to average out the NAV during the volatile period. The annualised returns vary from 11.49% – 18.68% which clearly beats the inflation and real return is much higher than bank fixed deposit and/or recurring deposit schemes. Please note that the above example is not indicative of future return or an advice to invest in these funds. This is just to prove the point that it is impossible to time the market and thus the benefits of investing through mutual fund SIPs works in your favour always, if you are investing for the long term.

Conclusion – The above proves that if you are investing for the long term wealth creation, then you need not waste your time watching the markets or even try timing it. Investing in a good diversified equity fund through SIP is the proven and time tested formula across different market cycles. The levels of market should not be the criterion for starting or closing a SIP. Investors need to stay on the course during the volatility as it could turn favourable for him/her. The investors who stayed invested in SIPs and continued them or even those who forgot to close during this most volatile period in the history of stock markets in India, have successfully beaten the inflation and made more returns than Bank FD or recurring deposit schemes.

However, based on your risk taking appetite and the time by which you want to achieve a particular goal, you should select an appropriate fund and the best way would be to consult a financial advisor who may help you suggest one or more.

Disclaimer – the above schemes are popular funds with large SIP folios but not an exhaustive list for investors for selecting a right fund for their SIPs. There could be funds which are giving better returns and not covered in this list. For selecting an appropriate fund consult your financial advisor.

(Excerpts from article by Pradip Chakrabarty,, 14 May 2014)


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31 Oct 2013
Never Ignore Stock

Never Ignore Stock Markets

At the start of every New Year, there are a series of articles focused on which asset class is likely to do well for the next 12 months. There are two fundamental problems with such a discussion:

  1. It limits the time frame of the discussion to the next 12 months. This is tantamount to projecting what your child will grow up to be like based on what he ate for breakfast this morning;
  2. There is a false assumption that, though you may be guided into the right asset class by your private client wealth advisor, you will be sold the correct specific investment as opposed to the instrument which pays the wealth advisor the highest commission. This is tantamount to saying that because your child goes to school he actually learns something useful on how to deal with life.


Stocks are risky, but can make you money

Since January 1981, an investor in the S&P BSE-30 Index would have seen an investment of Rs 148 now be worth Rs 21,000. This 142x increase in your capital translates into an average gain of 16% each year, over the past 32 years. Note that I have not counted the benefits of dividends (about 2% each year) on the assumption that the changes in the basket of stocks in the Index would force you to pay a brokerage commission benefit of lower taxes. The capital gain tax on a stock held for more than one year is zero. These tax rates and rules have changed over time. For example, the holding period to qualify as a “long term” used to be “more than three years”.

Before you rush to buy stocks, recognise this: in 9 of these 32 years (28% of the time) you would have lost money. The value of your investment would be lower than your investment at the start of the calendar year. That is a lot of monetary pain to bear especially when your friend at the Diwali dinner, smiling as he munches on the deep fried samosa, is boasting how smart he is because he invested in bank deposits and FDs. But you could take the smile off his face with this simple fact: deep fried food is bad for health as sure as investing only in FDs is bad for your ability to continue your existing consumption pattern way into the future. If your friend had invested in a Fixed Deposit at 15% per annum in January 1981 (those rates don’t exist today, but it was Diwali and a time to be generous!) and was paying approximately 20% tax on that interest income every year for a net return of 12%, his initial capital of Rs 148 in January 1981 would be worth Rs 6,230 today – an increase of 42x. This investment in FDs is far lower than the 142x increase in the value of a similar investment in the S&P BSE-30 Index. A 12% net return after tax on FD barely keeps pace with the rise in prices of things you consume over long periods of time. And to find a safe FD which will earn that 12% after tax rate of return is pretty impossible.

Build a mix of investments

Before you rush to invest all your savings in stocks, recognise that the objective of any investment is:

  1. To convert your idle savings into earning you a rate of return that beats inflation -this allows you to maintain the lifestyle you have today in the future even though the prices of goods you consume have risen;
  2. To add to your wealth for paying the expenses of some future events like the education of a child, the marriage of your children, or buying your first home;
  3. To “park” your money in a safe place for a rainy day – keeping in the mattress is also an option as is keeping it in a bank;

Given that an investment in stock markets can lose money in any given year, some of your money does need to be in safe places like FDs or bank deposits. Over the past 32 years, FDs have given a better rate of return than stocks in 14 years (44% of the time). If one were to compare the rate of return of FDs and stocks over any 3-year period then FDs have done better in 11 of the total 31 time periods (35% of the time). If one were to compare the rate of return of FDs an stocks over any 10 year period, then FDs have done better in 4 of the 24 year time periods (17% of the time). Based on price movements since 1980, it would seem that buying equities gives you the same opportunity to make money as investing in an FD in any one-year period. But over longer time periods, being in stocks gives you a better opportunity to earn more money than even a 15% pre-tax FD (even if you can find such a safe investment).
Table 1: Stock markets rewarded those with patience over the long term

Investment horizon Blocks of time since Dec 1980 In how many of these time periods did FDs give a better return? In how many of these time periods did an investment
in the stock markets give a better return?
1-year period 32 time periods 14 (44%) 18 (56%)
3-year period 31 time periods 11 (35%) 20 (65%)
5-year period 29 time periods 11 (38%) 18 (62%)
10-year period 24 time periods 4 (17%) 20 (83%)

Gold should account for between 5% to 10% of your investment pool and remains the only hedge against the excessive spending habits of governments – worldwide. Property does not feature as an investment in my view but you could buy what you and your family will need and will use.

Allocate your assets, but allocating your trust is more important

During the annual discussions on ‘where to invest’, the investors and the media spend too much time focusing on asset allocation. This is because the theory of finance assumes that financial firms work for the benefit of their customers.
Theories are best left in classrooms to the imagination of teachers. The experience of investors in India – and globally – has exposed the selfish motive of financial firms to ensure their bottom line, even if it means there is a loss to their client. In the 2005-2008 time period, many investors correctly invested in equity mutual funds, but they were sold sector funds which paid excessively high-commissions. By shovelling client assets into these highly suspect products that should not really be a part of any simple allocation, the financial firms got their fees, the employees working in these temples of theft got their great salaries and bonuses, and the investors lost their savings.
Regulators in India – and globally – have failed to protect the investor from the powerful lobby of the financial firms. Unlike a published track record of, say, a mutual fund, which any investor can access and decipher to make their investment judgements, there is no track record available on how wealth managers at the banks and broking firms have advised their clients. The financial juggernauts remain large due to a lax regulation which, idiotically, continues to equate high capital with high integrity. The superpower status of the financial giants is also due to the lethargy of investors who – like deer standing frozen in beaming headlights – are waiting to be blown up by the next time bomb that many advisors will slip into their portfolio.

In a recent Supreme Court discussion on the Sahara Group, a judge stated that the corporate Sahara could no longer be trusted. Some investors have not waited for a court to comment on the lack of trust – they continue to invest a lot less in equity than they should. This is a pity because, over long periods of time, equity is the asset class to always have some exposure to. In the long run, we may all be dead, but we hopefully leave our children some wealth built by a carefully balanced and judiciously built portfolio.


(Courtesy: ‘The Honest Truth’ by Ajit Dayal on www. Equitymaster . com dt 06 Nov 2013)

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