The last post on SIP (hopefully)

I am now in Hyderabad for a short break, before going off to Kuwait again early next week. It was interesting to see that the reactions to the SIP posts have been coming thick and fast. Many people are completely aghast at my temerity to challenge something that a certain X or Y or Z has supported etc. Others have said that my idea is innovative but it is only for mature investors, still others feel I must do extensive calculations and try to convince them that I am right. There have however been about 5 people who have said that they have already shifted from standard SIP, partially or completely and are now trying to implement my method with some variations.

I am surprised at all the confusion surrounding all that I wrote. Since, my command over written English is actually pretty good I find it difficult to accept that the lack of clarity was from my arguments. I therefore attribute this to the closed mind of some readers who are finding it difficult to think beyond what they are used to. People say, “past performance is not an indicator of future returns”, but somehow believe that a 15 year SIP will at least give a CAGR of 12 %, if not more. People looking at only our markets between 2000 and 2015 forget that there is a much wider world and in far more developed markets of Japan and US there have been long periods of stagnation or even negative returns.

But coming back to the summary of what I am saying in simple terms, hopefully for the final time :-

  1. Returns from equity are not a function of time, it is a function of at what price you are buying it at. Therefore it is far wiser to buy a stock or MF unit at a lower price point even if you have to wait.
  2. You do not need to be mechanical in your investments. Suppose you are investing 40000 Rs per month in debt and equity with a ratio of 2:3. Look at the annual picture, rather than thinking of investing 16000 in debt every month and 24000 in equity every month.
  3. If you are not investing in equity due to the markets being at a higher level, putting the same money in debt will ensure that you get a higher return in that year from debt, as that part is time dependent.
  4. Remember that our markets are driven largely by FII money, who will need to pump in and pump out money depending on a variety of reasons affecting their interest. Therefore, expecting a continued bull or bear run over a number of months is impractical.
  5. In any case a bear run is good for investments as you get to buy units at a cheaper rate. Even during an overall bull run there will be several days of sharp corrections. Just look at 2014 and 2015 to understand what I am saying.
  6. The greatest flaw of a standard SIP is that you are investing in a day, irrespective of what the market condition is. So your buying price is completely a matter of chance. Yes, you can get lucky that your day is the right day but with 20 trading days in a month your probability of that is only 5 %.
  7. Now for all the people clamoring for Maths and formulas let me now give you some from the probability that I remember – chances of it being the right day for 2 months is only 0.25 %. If you stretch that to 12 months the chances are practically nil.
  8. Regular investment in any instrument is a great idea but when it comes to equity the attempt has to be to try and buy it at a price that makes sense.
  9. A lot of people, confuse the issue of timing as whether we are able to predict the top or bottom of the markets. This is silly and moreover it is not at all required.
  10. I have SIP in 7 funds on the 7th of each month. All that I am trying to do now is to invest manually in these funds with a mechanism that will get me to buy units at better prices than what was happening before.
  11. Till October I was passively buying the units on 7th of every month, irrespective of where the markets were. From next month, I will have some control over it and the process I have fixed will ensure that I buy units at progressively lower NAV. Note that I am not saying I will buy it at the lowest point of the month or year, that will not be possible.
  12. I am looking at investing 35000 each month on an average for 12 months but I need not do it every month. I may well do only debt for 2 months if the markets go up continuously. I am certain that in the span of a year the markets will give me enough opportunity to invest the amount that I want to.
  13. If you feel this will require sitting in front of the TV or laptop all the time you are wrong. In today’s day of smartphones and techniques such as triggers and alerts, you can very well do these without really getting distracted from your main job or profession.
  14. I built most of my stock and MF portfolio ( with a fair bit of help from my wife ) between 2007 and 2014, when I was the CEO of 2 public limited companies, which operated globally. I doubt if things could get busier than that.
  15. Finally, if you still feel that standard SIP is the best way to go you should not make any changes.

My objective is not to convince others that I am right and they are wrong. I have myself invested in standard SIP for 7 years now and realize that I could have done much better. And no, I do not need to be a Peter Lynch or Warren Buffet or Ramdeo Agarwal to understand that. I can understand and act for my own investments by being myself. If others feel that a standard SIP works better for them, great – I am not here for an academic debate, I only shared my current plan. Whether others agree to it or not does not make the slightest difference to the fact that I will be implementing it for myself.

I do think though, that things are getting repetitive and will shift to other topics from tomorrow.


3 thoughts on “The last post on SIP (hopefully)

  1. Dear Sir,

    Thanks for the post.

    I have a questions.

    Say you are planning to buy units from a Mutual Fund called X on 05/10/2015 with NAV of 100RS, and if you put the request to buy units via demat account portal or via the AMC’s portal, from my experiance it takes minimum 2 to 3 days to get the fund released from bank account and complete the purchase, and there is possibility on the 2nd or 3rd day the NAV may be 105RS – how do you handle this? Or do you follow some different approach to buy the units immediately?


  2. Thanks for the post, I concur with your thoughts. Instead of doing SIP, better to put money in MFs cashing on the market downfalls. As now days most of MFs are available to buy online, Instead of doing SIP, one can wait and invest the lumpsum amounts in the MF



  3. I guess that is how it should be, sir. I do agree with your views – it is common sense to buy low and not go manual..and with all the tools around, you don’t need to be stuck at a computer 24*7 to do this.

    I do notice a trend here with your recent posts though. Please do take this as a suggestion or rather its my concern which I’d like to share with you sir: I believe your wonderful writing, fresh perspectives, way of explaining things in the simplest manner to us, and your knowledge and energy would be better utilized in making us understand concepts rather than fighting people. People may take if they want to take (yes, there may be genuine doubts – not saying you do not answer that), but in my opinion, beyond a certain point it may not be worth explaining things to people who simply do not want to learn (you do your best to lay down things and define boundaries clearly, sir).

    I love the posts you write – especially the ones you wrote when you started writing this blog and the no. reached 100.. These were excellent and offered really fresh perspectives to many of us. Taking those posts forward, I’d love to see you write more about investing in equity, some advanced strategies in it, and building a corpus over time, sir.


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