Systematic Investment Plan

[pearsbent]

Thanks for providing information, i have some money so i want to invest that in mutual fund and something invest in share-market so what should be bater for me.

Please guide me.
Thanks in advance.
Have a good day.

 

[jemspooja]

Re: 80% equity to 20% debt

Plz suggest me if i want to invest 1 crore in market with the asset allocation of 80% into equity and 20% in to debt.
What would you suggest exactly......Considering i m a good earner as well as paying tax...

SIP Vs OneTime Investment

It is well known fact that SIP (rupee cost averaging) is great for achieving good returns. It is better suited to volatile markets. In a bullish market SIP may not return best returns compared to

OneTime Investment. 2006 was a bullish year and the returns delivered from SIP are not the best compared to OneTime Investment.

Example:
Fund Name : Sensex Index Fund

OneTime Investment:
Investment Date : Jan 1, 2006
Investment Amount: Rs 1,20,000/-
Value on Jan 1, 2007 : Rs 1,72,653/-
Percentage Gain : 30.5 %

SIP:
Investment Amt: Rs 10000/- on 1st of Everymonth -Totalling Rs 1,20,000/-
Value on Jan 1, 2007 : Rs 1,46,643/-
Percentage Gain : 22.2 %

In the year 2006(bullish), SIP the above fund returned 22% as compared to 30% of OneTime Investment. So, it clearly shows that in a bullish market SIP might not be a best idea. But what happens if the market crashes the next day you have invested your money. , then SIP is the best one to average the cost.

To evaluate this, I have done a simulation on SIP and OneTime Investment. I'm pleased to provide the results. Please let me know your opinions on this.

Assumptions:
1. Market movement is assumed to be random with equal chance profit and loss
2. Monthly profit/loss range is limited to -10% to 10%
3. This analysis holds for period of 1 year

Method:
OneTime Investment:Rs 1,20,000 /- is invested at one go in the market at NAV of Rs 10/-
SIP : Montly Rs 1000/- is invested at NAV which is calculated on random function (-10% To 10% profit ) - totalling Rs 1,20,000/- for one year.
At the end of 12 months, the final amount is calculated in both investments (OneTime and SIP)
Since the market is based on random movement with equal chance of profit and loss, at the end of year, either SIP or OneTime investment perform better than the other.

This whole action( I call it one Trial) is simulated for 100000 times. This method results the outcome of 100000 simulations and which one performs better most of the times.

Resuts:
Out of 100000 simulations, 21074 times( i.e 1 out of 5 trail ) OneTime Investment gave high returns compared to SIP. And SIP scores over OneTime Investment in 78926 times ( i.e 4 out of 5 trials).

Another comparision of performance of OneTime and SIP investments for 100000 trails.
In 54,082 trials, OneTime investment gave negative returns, while SIP method gave negative returns for 26189 times for one year investment This explains the events, if the market crashes after oneTime investment.

There is one more interesting factor, OneTime investment gives high returns (over 30%) more number of times than SIP investment assuming bullish markets.

Please find the attached screenshot of the details.

All these simulations consider a time frame of 1 year. The probability of greater returns for OneTime and SIP is 1:4,
If the timeframe is increased to 5+ years, then the probability of greater returns for OneTime and SIP is 1:2

Conclusion:
As per the above analysis, SIP scores over oneTime investment. If you have huge amount to invest, Better invest regularly in small amounts using SIP in Equity.

Comments are welcome. Please correct me if I'm wrong.

 

[shahnawaz.naseem]

can any one mail me in detail about systematic investment plan...i m doing project on this topic and deadline is 22 april ..i will be very thankful to u...my mail id is [email protected]

 

[vssoma]

can any one mail me in detail about systematic investment plan...i m doing project on this topic and deadline is 22 april ..i will be very thankful to u...my mail id is [email protected]

dear,
check this thread from first post, it's like encyclopedia.

 

[savkar]

can anyone advice if i can go ahead investing a SIP on birla sun life mid cap plan A (G).

thanks

One of the best performers around.
Invested 2.5L in Jan'10 ... gave me 25K profit by Mid April

 

[savkar]

Re: 80% equity to 20% debt

Plz suggest me if i want to invest 1 crore in market with the asset allocation of 80% into equity and 20% in to debt.
What would you suggest exactly......Considering i m a good earner as well as paying tax...

Get a investment advisor and let him manage 50% of your funds.

Just to throw in,
Invest in around 10 MFs direct, 10 MFs via SIP. Top 10 blue chip companies and Gold.

 

[nikrod]

Re: 80% equity to 20% debt

Invest in around 10 MFs direct, 10 MFs via SIP. Top 10 blue chip companies and Gold.

I would strongly advise against investing in 20 MF's or even 10. Restrict number of equity MF's to 5-7. Otherwise your portfolio will be overdiversified (Containing as many as 500+ stocks) & the overall return would be in line with CNX 500 & other indices.

 

[dkj]

Re: 80% equity to 20% debt

I agree that the sip give better return than one time investment since you are investing on regular intervel. but how have you calculated it as 1:5 i could not get it.

 

[gourimaya]

Re: 80% equity to 20% debt

I would strongly advise against investing in 20 MF's or even 10. Restrict number of equity MF's to 5-7. Otherwise your portfolio will be overdiversified (Containing as many as 500+ stocks) & the overall return would be in line with CNX 500 & other indices.

Hi Nikrod,
I am a beginner and yet to start SIPs. That could be the reason why I don't really understand the logic behind your statement above.

I will explain my way of thinking with an example:

Suppose 1000 companies are listed in the market(or an index). Out of these, say, 500 are good stocks and remaining 500 are not performing well. After 10 years, if the average annualised return from good stocks is 30% & from bad stocks is 10%, then average return from the market(index) will be 20%, provided the weightage of good and bad stocks are same.

We invest in mutual funds under the assumption that Fund managers do lots of reasearch and invest only in good stocks. (That is the whole funda why we invest in Mutual funds, otherwise we could invest directly into the stocks).

Suppose if I invest in 10 funds, all with 5 or 4 star rating from good fund houses with good fund managers. Could you please convince me, how I cannot expect much better return than average performance of the market/index ?

 

[nikrod]

Re: 80% equity to 20% debt

Hi Nikrod,
I am a beginner and yet to start SIPs. That could be the reason why I don't really understand the logic behind your statement above.

I will explain my way of thinking with an example:

Suppose 1000 companies are listed in the market(or an index). Out of these, say, 500 are good stocks and remaining 500 are not performing well. After 10 years, if the average annualised return from good stocks is 30% & from bad stocks is 10%, then average return from the market(index) will be 20%, provided the weightage of good and bad stocks are same.

We invest in mutual funds under the assumption that Fund managers do lots of reasearch and invest only in good stocks. (That is the whole funda why we invest in Mutual funds, otherwise we could invest directly into the stocks).

Suppose if I invest in 10 funds, all with 5 or 4 star rating from good fund houses with good fund managers. Could you please convince me, how I cannot expect much better return than average performance of the market/index ?

Hello there,

Assume that one fund holds average 50 stocks. also assume that 30 are good & 20 are bade stocks.

Now if you invest in 5 funds, you have 150 good & 100 bad stocks. If you invest in 10 funds then you have 300 good & 200 bad stocks. Please note that even if the percentage of good & bad has remained same, the number of bad stocks has increased and that can affect your portfolio in negative direction.

Anyways my above argument is not really good. But studies have shown that you loose advantages of diversification above 25-30 stocks in portfolio. The reason Indian fund managers have been able to beat the market till now is research and concentration. If you compare last 5-10 years index returns with good funds, there is vast difference. There are also funds that have given worse performance then even FD's let alone equity indices. And when I say that by holding 500+ stocks your portfolio will perform in line with CNX 500, look at good funds that have outperformed CNX 500 for past years. So it would always be better to have necessary concentration rather than over diversification in your portfolio

There is also manageability prospective, which makes lesser number of funds easier to manage. Further to investing, you should also track your funds regularly otherwise underperformance will be forgotten & forgiven which in turn would affect the portfolio as whole.