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. 

India - a gigantic success or colossal failure - reply of an NRI

Nilesh Shah, MD, Kotak Mahindra Mutual Fund, put out a great series of tweets giving the answer of an NRI to the Question - India - a gigantic success or colossal failure?

These had to be compiled and shared.

Your Money 2016 - The "forget it way" to managing your money

 A great series of articles in the Mint should serve as a guide to all those who wish to take charge of their financial lives.

Most of us work hard for money but falter when it comes to putting that money to good use and making money work for us. Many of us plan our lives wonderfully till we get  a great job and live off that income without working to create wealth. The links given here can be a very useful guide in personal financial management.

Tips are given in each of the links below on how to start and progress - step by step

Do read and save these links which I tweeted earlier.

FATCA - Online Self Certification Facility offered by Registrars - links with my comments

 With effect from November 1, 2015 all investors will have to mandatorily provide  information and declarations pertaining to FATCA for all new accounts opened. For pre - existing accounts AMCs are reaching out to investors to seek the requisite information/declaration which has to be submitted by the investors before specified timelines.

For investor convenience, Registrars have allowed investors to submit the same through online mode for updates across Funds, serviced by them.

A look at the physical forms sent by Mutual Funds, shows that the data needs to be updated for ALL holders of the folio and links to sample forms are here MotilalOswal MF and Quantum MutualFund

I tried the online links and please make use of these and see my comments

Franklin Templeton Mutual Fund

The online updation link is here . Franklin handles its own RTA activity.

For FT, you need to know your folio number, input the same and go along till you submit. For Franklin Templeton, I was able to update the information for all holders. The PAN of the second holder was recognized and I could update the same.

CAMS

CAMS has provided the facility to update the information once and the same will be done across all Funds for which it is the RTA. The link can be accessed from here .

If an investor is only second holder in folios of CAMS Funds (and not the first holder in any scheme), the PAN is not recognized in the option - "I am an existing investor in CAMS"  I have mailed the Registrar a couple of weeks back and I hope this is fixed quickly. Else, second holders would have to use the physical form.

Karvy – the easiest and the best among all

The link for Karvy's Funds is here . Karvy has given us the additional facility to view and edit earlier submissions which is not there for the above two Registrars. I used this to view the earlier submission. 

This is the simplest link and the easiest one to fill in and kudos to the team for keeping it simple. If you are only a second holder in any of Karvy’s Funds, your PAN is recognized and you can very easily complete the process.

Sundaram BNP Paribas Fund Services

There is no online link at this website to update FATCA details for investors of the 2 funds for which they are the RTA – BNP Paribas MF and Sundaram MF

MF Utility CAN

If you have a CAN from MF Utility, you can update the FATCA declaration online here at one place for the 25 Funds which are participating in MFU. I have not tried this facility since I do not  have a CAN. Please try this and comment - I will add the comments

Patanjali takes on MNCs: Yashwant Deshmukh on how giants have conspired against locals

Patanjali takes on MNCs: Yashwant Deshmukh on how giant pharma companies have conspired against locals - cites the case of Vaidya Gauda

Behavioral Finance: What Good Is It, Anyway?

Primers: Nifty Fifty and other videos on the markets from the BL

Bears and Bulls



Exchange Traded Funds




Know your customer



Market Cap




Nifty Fifty




Algo Trading



Hedge Funds

@jace48 and @Prashanth_Krish explain the performance of Quantum LT Equity Fund

Interesting graphs and market tidbits from @Prashanth_Krish

Prashanth has been sharing some really super graphs and interesting market tidbits.

Have a look...

Mutual Funds' net inflow and Sensex Returns

Mutual Funds turned net buyers for 16 straight months and reproduced below is a table - Mutual Funds' net inflow and Sensex Returns from the Business Standard
                 

Mutual funds net inflow		Sensex return
Month	Rs Crore	%
May-14	106	8.03
Jun-14	3,251	4.94
Jul-14	5,081	1.89
Aug-14	6,958	2.87
Sep-14	4,342	-0.03
Oct-14	5,940	4.64
Nov-14	1,677	2.97
Dec-14	6,229	-4.16
Jan-15	879	6.12
Feb-15	4,309	0.61
Mar-15	3,940	-4.78
Apr-15	9,244	-3.38
May-15	4,177	3.03
Jun-15	10,320	-0.17
Jul-15	4,800	1.2
Aug-15	10,017	-6.51
Business Standard

Irritating, customer unfriendly procedures at Mutual Funds

Irritating and unreasonable procedures at Mutual Funds.

It is a known fact that minors may not have bank accounts and when investments are made on behalf of minors, it is common to give the bank account details of the guardian and issue the cheque from the guardian's account.

However, when the minor turns a major, the folio is locked for transacting till some formalities are completed in the folio which include registration of the PAN, KYC and bank account of the minor.

Now, a few years ago, if an investor (not minor) had to change bank account in the folio, mutual funds wanted proof of the old bank account ( account to be deleted from the folio - old bank account cheque leaf) as well proof of the new bank account. This was to protect investors from fraudulent changes.

However, this is really unreasonable in the case of minors who have turned major since this is not technically a new bank account.  It is the introduction of the minor's account in the folio.

Do see the tweets below - irritation faced by an investor and the delay in getting redemption proceeds.

Are you aware of the risks of investing in Credit Opportunities Funds?

 Yesterday the NAV of two of the debt schemes of JP Morgan Mutual Fund fell:

JP Morgan Short Term Income Fund  -3.38% - This is a short debt fund with Avg Maturity of 3.59 yrs and a Modified Duration of 2.01

JP Morgan India Treasury Fund  -1.73% - This is an ultra short term fund with Avg Maturity of  0.51 yrs and Modified Duration of 0.37

These schemes, at the end of July 2015 held 15% and 5% of their AUM in one security - Amtek Auto. It seems that Amtek Auto paper was downgraded from AA- to C yesterday.

@BrettLeeholic Amtek Auto downgraded today...AA to C!!!!

— INFixed Income (@FixedIncomeIN) August 27, 2015

That is, yesterday, the scrip was downgraded from one which  has high degree of safety regarding timely servicing of financial obligations with very low credit risk to one which is considered to have very high risk of default regarding timely servicing of financial obligations.

Brokers were being approached to get rid of Amtek papers

Refer my previous tweets, I said a fund was aggressively approaching brokers to get rid of Amtek paper!

— INFixed Income (@FixedIncomeIN) August 27, 2015

@atwistintale Amtek money market bonds maturing 20/09/2015!!! Imagine return, if face value not repaid!! ;)

— INFixed Income (@FixedIncomeIN) August 27, 2015

Spate of NFOs - Credit Opportunities Funds - Read this: Investors searching for high yields floods debt mutual funds

In the last year, there has been a spate of NFOs of Credit Opportunity Funds / Short Term Income Funds. These Funds invest in Corporate Bonds which are rated by credit rating agencies whose analysis I simply do not trust. 

This simply underscores the fact that in choosing to invest in such funds one must understand the risks involved. 

Corporate Bonds are not liquid securities

In addition to the risk of default, investors must note that the Corporate Bond market is not an open liquid market. Trades are through brokers and till the establishment of an online platform for dealing, trading in such securities, deals are not transparent. Any major selling will drop prices. I have had several investors with no idea of the risks involved asking me if these credit opportunities funds were a good place to park money as they expected higher returns that fixed deposits. 

Not really good advice - Commission matters to bankers and sellers

@invest_mutual @LazyTRaider @FixedIncomeIN my advisor put me into this fund. would i have grounds to say it was bad advise or just bad luck?

— Tejus Sawjiani (@tejus_sawjiani) August 27, 2015

Many of us on twitter have been warning of the risks in such funds and please read the tweets and links below. As LazyTraider has been saying - many of these corporate bond funds have been taking unnecessary risks for earning a few basis points more

With lower rated, risky bonds not very liquid, be careful when getting into ST debt funds

— Mahesh (@invest_mutual) August 24, 2015

Boom ! One example of kind of risks bond funds have been taking. Something I have been ranting for a while ... https://t.co/7Bj1CCZp4Q

— Lazy Trader (@LazyTRaider) August 27, 2015

.@tejus_sawjiani Bad advice ! Lots of these corporate bond funds have been taking credit risks for a few basis points more @invest_mutual

— Lazy Trader (@LazyTRaider) August 27, 2015

Risk taken by Equity FMs is transparent. Debt funds very tough. Too many skeletons hidden under holdings like xyzseries 12 etc @NagpalManoj

— sandip sabharwal (@sandipsabharwal) August 28, 2015

Investors searching for high yields flood debt mutual funds - short-term and corporate bond funds http://t.co/EorSWvhVmz

— Mahesh (@invest_mutual) August 24, 2015

Qs top distributors ask before selling a MF StanC: Global tie-up? CitiBank: Upfront? ICICI: High Upfront? HDFC: Manpower? No customer :(

— Manoj Nagpal (@NagpalManoj) August 28, 2015

What happens now to investors in these schemes?

There will most likely be a spate of redemptions. The AMC took concentrated risk. 15% of the AUM of a small scheme of 400 crore AUM was in one security. 

It's adieu time JP Morgan MF - The risks they took are now falling apart Remember all debt is not the same. All debt is not safe

— Manoj Nagpal (@NagpalManoj) August 28, 2015

This was because of a MM bond maturing on 20/09/15...Imagine, if the AMC had failed to exit 2020 (5yr) amtek paper which it held till May15

— INFixed Income (@FixedIncomeIN) August 27, 2015

On the markets today - The focus is on who you are

On the markets today - The focus is on who you are. A great series of tweets by Deepak Shenoy