Build real wealth through SIP - Has your SIP performed - checking a curated list

I have had the chance to interact with several investors, working professionals and businessmen over the past couple of years in investor awareness sessions and have brought to their notice the benefits of discipline in savings and regular investment. Despite the inherent risks of investing in equity, investors should not shy away from equities and do read this . I consider mutual funds a great tool for investing in equity. Even old market pros, I have met, invest in mutual funds for  wealth building.

The question arises as to when to invest - what is a good time to enter the market? Do see this.. 

Munger was asked in 2009 how stocks investors should avoid big drawdowns: pic.twitter.com/OUUaGMJbHN

— Morgan Housel (@TMFHousel) February 12, 2016

Many individuals simply have no time to follow the market and invest on their own regularly and are happy to participate in the equity markets through SIP in mutual funds. 

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The mutual fund SIP is a fantastic tool which obviates the need to time markets. In addition, the automation of investments simplifies life. Else, one may not have even invested in equity if this facility was not available. Most advisers ask investors to be invested in SIP for the long term to enjoy the benefits. It wont work in the short term.

I wanted to see the efficacy of Funds in building wealth over a period and since markets have fallen considerably from last year's highs, I thought I would check the performance of investments through SIP now after this fall . To choose the funds, I chose the popular curated list by the Mint newspaper, though I may not agree with some of their choices. 

I have checked SIP returns of Large Cap (7 funds) , Multi Cap (9 funds)  and Mid cap (6 funds) funds in the list. The categorization has been done by the Mint only and one can check the list published by the Mint online.

Returns have been taken for 5, 7 and 10 years (in those cases where the fund was in existence for 10 years) and the returns are for the period ending  11 Feb 2016, i.e 5 years, 7 years, 10 years ending 11th Feb 2016.

The results - SIP returns from the list of funds included in the Mint 50 

Disclaimer: Past performance may not be repeated

Large Cap Funds -7 funds in the list:

Over a period of 5 years the various funds gave a median return of  9.02% inspite of this drawdown and annualized returns of the best and worst fund in the list were 11.3% and 5.07% (Guess who the low figure belongs to!)

Over 7 years the various funds gave a median return of 9.8% and annualised returns of the best and wort fund were 11.3% and 6.13%

Over 10 years the various funds gave a median return of 10.44 %  and annualised returns of the best and wort fund were 12.41% and 6.15%

Multi Cap Funds - 9 Funds in the curated list:

Over a period of 5 years the various funds gave a median annualised return of  12.12% and annualized returns of the best and worst fund in the curated list were 18.33% and 5.70%

Over 7 years the various funds gave a median return of 14.14% and annualised returns of the best and worst fund were 19.1% and 8.43%

Over 10 years the various funds gave a median return of 12.89 %  and annualised returns of the best and worst fund were 17.92% and 10.2%

Mid Cap Funds - 6 Funds in the curated list:

Over a period of 5 years the various funds gave a median return of  20%!!! Inspite of this drawdown!! The annualized SIP returns of the best and worst fund in the curated list were 23.81% and 16.74%

Over 7 years the various funds gave a median return of 19.75% and annualised returns of the best and worst fund were 20.74% and 17.67%

Over 10 years - there were only 2 funds in the list over ten years and their returns were a decent annualized 18.26% and 17.04%

These are SIP returns and these annualized returns were an eye opener for me. It has convinced me that time in the market maters. Real wealth can be built over the long run through SIP.

If you have invested Rs. 10000 per month in each of the median schemes over the last 7

years - i.e a total of Rs. 30000.00 per month, the amount you would have is greater Rs 38 Lakhs.

I dont need a muhurat to start an SIP. It inculcates a sense of discilpiline, automates the investment of your saving. Choose wisely and take the help of an advisor if you need one.

Disclaimer: Past performance may not be repeated 

Chart Nifty vs Bank Nifty

Bank stocks have been hammered. See the fall compared to the Nifty

Chart - Nifty vs Bank Nifty

Snapshot: Nifty PE, PB, Dividend yield and the worlds cheapest markets

The Nifty is at 7489 and the Sensex at 24617. 

So, where are we in terms of valuations, when the market has receded from recent highs? Two ratios to evaluate how expensive the market is are the market PE Ratio - (Price-earning ratio) and the P/B Ratio (price-to-book ratio). 

Today, the Nifty PE is 19.99 Nifty PB is 3 and the Nifty Dividend yield is 1.54 . 

Just for perspective, the highs on 8.1.2008 were PE - 28.29, Nifty PB - 6.55 and the  Dividend yield - 0.82

See this pic from:  The worlds cheapest markets 

A snapshot view of the Nifty PE, PB and Dividend yield as on 5.2.16

Do read this - Global stock market valuation ratios

Mutual Funds, online gyan, criticism and more...

Advice on investing is free and fast on online media and the noise is as much as it is on TV and mainstream media. Gyan for the day is common and everyone with their own agenda, viewpoint  gives gyan (some of it very useful). Many statements are made and with real conviction. Yes, we do do require several view-points and many of these statements, make me re-look at my processes for investing

Some of the things I hear often are given below. Decide for yourselves if you agree with these or not.

Don't go by past returns/ performance

These words are sometimes bandied about on twitter and FB by themselves without adding, what is to be done. Shouldnt one check the performance of the fund when selecting? The actions of the fund manager are captured in the returns and investors measure the returns over various periods, the rolling returns, SIP returns to get an idea the scheme's and fund manager's performance. I do check the rolling returns  and the SIP returns over various periods among other things when selecting a fund for myself.

There are other parameters I check, other than past returns and more about that in tweets or in another post. 

Glorification of DIY and vilification of IFA

While I am all for DIY, which will save one in intermediation costs, how many are really ready for DIY investing? I have met a DIY investor with 42, I repeat, 42 funds in his portfolio. When he learnt  that it was sub-optimal, he took help. Intelligence is in taking help if you need it and it is upto to you to choose if you are knowledgeable enough to DIY or need to take the help of an advisor, intermediary. 

Vilification of IFAs

Running down IFAs is a special pastime on online forums. This is mainly done by DIY votaries. It often seems that those engaging in this, grudge the intermediary IFA/ advisor her income.  Someone nicely said in a tweet – You don’t rise by putting the other one down. Leave that to the elevators.

Having conducted a few financial planning workshops over the last couple of years I found that hardly 5% of those attending have invested in mutual funds and know about funds. Many who attend want help and guidance and some are even confused with SEBI's advertising code and the word RISK prominent in the ads. Young and old investors want to understand what it means and how funds work. In such a case, they may come to an IFA / or advisor for help who can handhold them till they learn. 

There is nothing wrong in either going to a registered investment advisor or to a distributor of mutual funds if you need help in investing. Only, do not hesitate to ask her questions. There should be willingness to answer every question asked. 

Do not listen to the "grudge" comments. Advisors do advise on asset allocation, allocation within the asset class and on monitoring and rebalancing. 

If you do believe you can DIY, you should go ahead. You own up the decision making process.

 To SIP or not

A few investors on online forums criticize SIP regularly! Yes, there is more to investing than just regular investing.  Yes, you have to allocate among different asset classes and within an asset class like equity, you have to diversify. You have to monitor. You may have already allocated your funds among real estate, gold and may want to start / increase allocation to equities. I have found personally that SIPs are a good way to do so.

I personally consider SIP as a great way to invest in equity mutual funds, but I know what to expect and what I should not:

Using SIP as a tool:

1. I do not have to bother timing the market

2. One cant get rich quick with an SIP, BUT ONE WILL BUILD WEALTH slowly SIP by SIP.  As one spends more time in the market, one will see the effect of compounding.

3. Doesn't mean that if I use SIP, I cant do a lumpsum when I choose to. I use both.

4. SIPs work over the long term 

5. I will not stop SIPs when the market is down.

Critics of SIPs dont provide an alternative, simple method for professionals who start with small amounts to save every month for whom I consider automation of the process, the best. 

  

All those reading must make their own choice regarding all the above since personal finance is "personal".

Disclaimer: I have been conducting investor awareness workshops and have been approached by many of those attending, for help. Therefore, I have registered with AMFI and became an IFA recently to advise those asking for help.