Hope you have doubled your SIP Investments this monsoon?

Yes, you have read it right. And no there is no typo error here. I am asking you whether you have doubled your SIP Investments in Mutual Funds recently?

What did you say?
The markets are down and there is gloom all over. The World is in recession including India and hence we should stay away from equity (stock market) investing. So am I crazy to suggest that you increase your SIPs in Mutual Funds? Now, I fully agree with the 1st part of the sentence and partially agree with the 2nd part of the sentence. Let me explain in detail.

Explanation to Part I: “The markets are down and there is gloom all over”.

Yes, the markets are down and there is gloom all over & it is precisely for this reason I am suggesting that one should buy equity or invest in our stock markets.

I don’t know which school you went to but my professor has taught me that the way to make money either in the stock market or for that matter any other market is to “BUY CHEAP & SELL DEAR”.

In other words, buy stocks when the markets are down and sell stocks when the markets are up. Were you taught something else by your professor? Well then check how his investment portfolio is doing.

Because I believe that one does not need a phd to figure this commonsensical fact that the only and the surest way to make money is to BUY when prices are LOWER and SELL when prices are HIGH.

Explanation to Part II: “The World is in recession including India and hence we should stay away from equity (stock market) investing”.

Now, coming to the 2nd part of the question. There is gloom all over the world and constant talk of recession, slowdown and negative investor sentiment. Well, as I said , I only partially agree with this statement. Yes, we are living in troubled times. Most part of the western economy is in financial turmoil today. US has just been downgraded (first time in 4 decades) amid fears of a double dip recession, Europe is fighting possible bankruptcies of at least 3 nations including Greece and is barely managing to keep the euro zone intact. Japan has been in trouble and facing slowdown for more than 2 decades now. So you are partially true that a major part of the world economies, especially the western ones are either in recession already or on the verge of recession.

So, why do I not fully agree with the statement that there is gloom and fears of recession all over the world. Because there is one silver lining to this cloud and that silver lining is India & China. When the entire western world is in financial struggle, struggling to save itself from falling into recession, Indian and China are the only 2 large economies that are giving support to the hope that the world economy might be saved from recession.

NO there is no recession in India. I repeat, there is no recession in Indian and neither is there any fear of recession coming to India at least for the next decade. How do I know? Well, let me FLIP the question and ask you “Which FOOL told you that there is recession in India?”. If a friend or relative or broker or agent has told you so, then stop discussing finance and investments with that person, because he knows nothing about that subject. If you have read about recession or even fears of recession in India in any newspaper or magazine, dump that newspaper or magazine and let that be your last issue.

The text book definition of “RECESSION” that is generally and most widely accepted defn of recession by economists around the world is as follows: “ A country is in recession if its economy faces 2 successive quarters of negative GDP growth”.

If an economy shrinks (that is does not grow at all but has a –(ve) growth rate for 2 consecutive quarters in a row, then that is called as recession. India for the last many quarters for the past decades is growing on an average in the range of 7 to 8 % per annum. For us to qualify for recession, we should not be growing but shrinking @ -0.5 to -1% for two quarters in a row. Have we passed this test anytime over the past few decades?

NO, WE HAVE FAILED THE TEST OF RECESSION and that too miserably. India has not even known what recession is for decades now and will possibly not see one for next few decades. Thank GOD. So be happy, cheer up and buckle up for the best decade that India has ever seen in its post independence history.

Yes I agree that there is slowdown in India, meaning that while we were growing at approx. 8 to 9% per annum over the last few years, this year we might end up growing in the range of 7.50% to 8.0% per annum, a decline of 0.5%. But that this qualifies India for the rank of 2nd fastest growing economy in the world after China. I agree that if the entire western economy is in financial turmoil, it will have some negative effect on our economy and especially our stock markets. But to what extent? “We should not confuse indigestion with stomach cancer”.

In fact the western economies are looking towards countries like India and china to lift the world economy from fears of recession. When was India so much important to the world economy?

So to repeat your concern once again,

The markets are down and there is gloom all over.

The stock markets in India are down and there is gloom in the west but there is HOPE in the East especially in India and China. In spite of the slowdown in our economy, the worst GDP growth rate forecast for India is @ 7.50% pa for 2011-12. This still will make us the 2nd fastest growing economy in the world next year. That is equivalent to a silver medal in Olympics. Why don’t we Indians celebrate India’s GDP growth like we do when an athlete wins a medal in Olympics…

One sure way of doing same is to invest in the Indian stock markets…

So am I crazy to suggest that you increase your SIPs in Mutual Funds?

I don’t think so. On the contrary I feel that any Indian, whether resident or NRI, would be crazy NOT to invest in Indian Stock Markets NOW (over next 6 months), if he has surplus Cash to spare and if his investment horizon is beyond 3 years.

Do you know when is the best time to INVEST in a country’s STOCK MARKET? The BEST time to INVEST in any COUNTRY’s STOCK- market is when 2 conditions are met:

Condition 1: The economy of the country that you wish to invest in should be strong & its GDP growth forecast should be robust.

Does India meet this condition? Yes, by all means yes. Our average GDP growth rate over the past 30 years is 6.50% and we are expected to grow @ around 7.50% to 8.0% this year. So India has aced this test.

Condition 2: The stock market of that country should have seen a correction in the recent past and therefore offer attractive valuations

Our stock market index “BSE Sensex” had reached the peak of 21,000 in Jan 2008, almost 45 month back and is yet to reach those levels. The market has therefore significantly corrected from those levels and therefore offers bluechip stocks at very attractive valuations.

Having met both the above conditions with full marks, I strongly believe that Indian equity is a very strong buy at these levels.

However a few caveats here…

READ the HEADING of this article carefully.

  • Did I tell you to buy SHARES? No.
  • Did I tell you to Invest in the market at one go? NO.

I am asking you whether you have DOUBLED your SIP INVESTMENT in well chosen MUTUAL FUNDs during the last few months.

  1. Why am I saying so? Because, investing in stocks directly is fraught with risks. The chances of you going wrong while choosing stocks (of the 7,000 odd stocks listed in the stock markets today) are higher than the chances that you will choose the right stocks. Even experts get baffled and make mistakes in choosing stocks. As for the traders and speculators, ask somebody who was speculating and/or trading in stocks over the past 3 years and you shall get the answer yourself.
  2. Why SIP investing and not investing in lump sum at one go. Because one is not sure that the Indian Stock Market has seen its bottom yet. The downside risk still remains and any major economic uncertainty either in US or in Europe can take our stock market further down from these levels. However, just because one expects the market might go down further does not mean that one should wait for that to happen as nobody can catch the bottom. Hence stagger your Investments over the next few months rather than investing at one go.

An SIP Investor BENEFITS from A MARKET FALL and should be HAPPY if the stock market falls in the short run as in a falling market an SIP Investor accumulates more units of mutual funds, which, once the stock markets recovers, will help him make much more money.

Hope, now you are convinced that when Indian economy is doing well, (yes high inflation and rampant corruption are the pain areas but do not forget that we are growing at 750% per annum in spite of these 2 evils) and our stock markets are down, and there is negative sentiment the world over, that is the best time to dip into Indian equity using SIP mode of investing via well chosen Equity Diversified Mutual Funds selected with professional advice.
Still sceptical and have your doubts… GOD save me. It is really difficult to convince an Indian to forget GOLD & REAL ESTATE and invest in Equity… OK… let us talk with some facts & figures…

  • What was the Sensex in Jan 2008? 21,000 odd levels
  • What is the Sensex NOW (Sep 18, 2011) ? 16,900 odd levels (down 19.50% since Jan 2008)
  • What was the price of GOLD on Jan 15, 2008? 11,500 odd levels
  • What is the rove of Gold NOW (Sep 18, 2011) ? 27,500 odd levels (up 139% since Jan 2008)

NOW, if may dare to make a BOLD statement here:
“Had you done an SIP in well chosen Equity Mutual Funds since Jan 2008, when the Sensex was at its peak at 21,000 levels, and continued your SIP investments till date (SEP 2011), you would have beaten Gold today (in SIP terms)…even though Gold today has appreciated by around 139% since Jan 2008 and the BSE Sensex has fallen by approx. 19.5% since its peak levels of 21,000 in Jan 2008.
DO NOT TRUST ME…. Here are the facts…. Carefully study the table below… it will be a shocker and an eye opener for YOU…

Sch-eme TypeAbs-olute re-turn over last 12 mon-ths (Oct 2010 to Sep 2011) (%)Value of Rs. 1.20 Lacs inv-ested via 12 mon-thly SIPs of Rs. 10k eachCAGR Re-turns since last 36 mon-ths – (Oct 2008 to Sep 2011) (%)Value of Rs. 3.60 Lacs inv-ested via 36 mon-thly SIPs of Rs. 10k eachCAGR Re-turns since Jan 2008 (last 45 mon-ths) (%)Value of Rs. 4.50 Lacs inve-sted via 45 mon-thly SIPs of Rs. 10k each
Equity Sec-toral Mutual Fund 117.65%1,29,42037.24%5,92,90032.2%7,85,300
Equity Sec-toral Mutual Fund 2-3.21%1,18,22033.81%5,68,17531.2%7,72,720
Gold Ex-change Traded Fund58.91%1,49,70032.65%5,59,97030.0%7,57,800
Equity Sec-toral Mutual Fund 331.86%1,36,65035.47%5,80,05527.9%7,31,870
Equity Diver-sified Mutual Fund 4-6.86%1,16,18024.75%5,06,16523.8%6,83,490
Equity Diver-sified Mutual Fund 1-0.11%1,19,94027.18%5,22,32021.9%6,61,930
Equity Diver-sified Mutual Fund 3-3.83%1,17,88026.88%5,20,32021.8%6,60,815
Equity Diver-sified Mutual Fund 2-10.82%1,13,93028.85%5,33,64021.5%6,57,465
Bal-anced Mutual Fund 1-4.54%1,17,48025.81%5,13,17521.5%6,57,465
Equity Diver-sified Mutual Fund 5-8.58%1,15,20022.05%4,88,59020.1%6,42,000
Equity Diver-sified Mutual Fund 6-11.98%1,13,26024.96%5,07,05020.0%6,40,900
Equity Diver-sified Mutual Fund 7-13.36%1,12,46024.12%5,02,02519.6%6,36,500
Bal-anced Mutual Fund 2-0.92%1,19,49021.80%4,86,98518.8%6,27,900
Bal-anced Mutual Fund 3-7.76%1,15,67021.27%4,83,59018.6%6,25,765
BSE Sensex-20.76%1,08,0007.29%4,00,0004.7%4,90,130

The table above, gives SIP returns for last 12 months (Oct 2010 to Sep 2011), SIP Returns for past 3 years (Oct 2008 to Sep 2011) and SIP Returns for the past 45 months since Jan 2008, when the BSE Sensex reached its peak of 21,000 (Jan 2008 to Sep 2011). The adjacent columns gives the current value of Rs. 10,000 monthly investment made in Top 10 Mutual Fund schemes over the respective time period.
We have also compared the return from Top 10 Equity Mutual Fund with Sensex returns (at the bottom) and with Gold ETF SIP returns (at the top).
So, what do you observe?
Now, it is not a surprise that GOLD is at the top of the table and Sensex at the bottom. But what might surprise you is that at least 2 Equity Mutual Fund schemes have given compounded returns more than GOLD ETF (which exactly mirrors the Gold price) ince JAN 2008. A very BIG surprise. So the two top equity mutual funds have given compounded return of 32.2% and 31.2% respectively against 30.0% given by Gold SIP and a mere 4.7% by the Sensex. So while a Sensex has fared poorly against Gold over the past 45 months, top equity mutual funds have matched and in 2 cases, even exceeded Gold ETF returns since Jan 2008. SURPRISE SURPRISE….
In other words, had you invested Rs. 10,000 every month over last 45 months since Jan 2008, you would have invested Rs. 4.50 lacs till date. Now see the graphic below to see what is the current value of Rs. 4.40 lac investment:

Sch-eme TypeCompo-unded Re-turns
since Jan 2008
(last 45 months)
(%)
Value of Rs.
4.50 Lacs
in-vested via
45 monthly SIPs
of Rs. 10,000 each (Rs.)
Your Invest-ment
over past 45 Mon-ths
(Rs.)
Your Gain from your SIP Inve-stments(Rs.)
Equity Sec-toral Mutual Fund 132.2%7,85,3004,50,0003,35,300
Equity Sec-toral Mutual Fund 231.2%7,72,7204,50,0003,22,720
Gold Ex-change Traded Fund30.0%7,57,8004,50,0003,07,800
Equity Sec-toral Mutual Fund 327.9%7,31,8704,50,0002,81,870
Equity Diver-sified Mutual Fund 423.8%6,83,4904,50,0002,33,490
BSE Sensex4.7%4,90,1304,50,00040,130

The table above, gives SIP returns for last 12 months (Oct 2010 to Sep 2011), SIP Returns for past 3 years (Oct 2008 to Sep 2011) and SIP Returns for the past 45 months since Jan 2008, when the BSE Sensex reached its peak of 21,000 (Jan 2008 to Sep 2011). The adjacent columns gives the current value of Rs. 10,000 monthly investment made in Top 10 Mutual Fund schemes over the respective time period.
We have also compared the return from Top 10 Equity Mutual Fund with Sensex returns (at the bottom) and with Gold ETF SIP returns (at the top).
So, what do you observe?
Now, it is not a surprise that GOLD is at the top of the table and Sensex at the bottom. But what might surprise you is that at least 2 Equity Mutual Fund schemes have given compounded returns more than GOLD ETF (which exactly mirrors the Gold price) ince JAN 2008. A very BIG surprise. So the two top equity mutual funds have given compounded return of 32.2% and 31.2% respectively against 30.0% given by Gold SIP and a mere 4.7% by the Sensex. So while a Sensex has fared poorly against Gold over the past 45 months, top equity mutual funds have matched and in 2 cases, even exceeded Gold ETF returns since Jan 2008. SURPRISE SURPRISE….
In other words, had you invested Rs. 10,000 every month over last 45 months since Jan 2008, you would have invested Rs. 4.50 lacs till date. Now see the graphic below to see what is the current value of Rs. 4.40 lac investment:

Scheme TypeCom-pounded Re-turns
since Jan 2008
(last 45 months)
(%)
Value of Rs.
4.50 Lacs
in-vested via
45 monthly SIPs
of Rs. 10,000 each (Rs.)
Your In-vestment
over past 45 Months
(Rs.)
Your Gain from your SIP Inves-tments (Rs.)
Equity Sec-toral Mutual Fund 132.2%7,85,3004,50,0003,35,300
Equity Sec-toral Mutual Fund 231.2%7,72,7204,50,0003,22,720
Gold Ex-change Traded Fund30.0%7,57,8004,50,0003,07,800
Equity Sec-toral Mutual Fund 327.9%7,31,8704,50,0002,81,870
Equity Diver-sified Mutual Fund 423.8%6,83,4904,50,0002,33,490
BSE Sensex4.7%4,90,1304,50,00040,130

Yes, had you invested in the top equity mutual fund via SIP since Jan 2008, your Rs. 4.50 lacs investment would have become Rs. 7.85 lacs netting you a cool gain of Rs. 3.35 lacs. Compare this with a value of Rs. 4.90 lac and a gain of Rs. 40,000 only from Sensex and a value of Rs. 7.57 lacs and a gain of Rs. 3.07 lacs from Gold…

Now, do not forget that the above exemplary SIP performance from equity mutual funds is in a period when in absolute terms GOLD has risen by 139% and the Sensex has fallen by 19.5%.
3 cheers the Fund Managers of these Mutual Fund schemes….

Now, here comes the BOMBSHELL… Why am I asking you to double your SIP in Equity Diversified Mutual Funds?
Because going forward, over the next few years, I expect the Sensex to go gradually up from here and probably the reverse for Gold. Now imagine, in a period when Sensex gave a mere 4.7% compounded return, good equity mutual funds gave a staggering return in the range of 25 to 30% per annum compounded.

Imagine, what kind of returns will good equity mutual fund schemes give if the tide is in their favour and the Sensex itself gives double digit returns. Just IMAGINE the possibility…So, set up a meeting with a good, qualified Mutual Fund Expert and/or Financial Planner today, who will help you devise a good Investment Portfolio (ie help you choose the right Mutual Fund Schemes that suits your risk profile & investment horizon) and start your SIP investments asap….Also, please choose an Advisor who charges FEES rather than going to a mere agent/distributor who might not charge you fees but dump your investments in non-performing mutual fund schemes. (Please refer to my previous article titled “No Entry Load on Mutual Funds….“). Remember, if your Mutual Fund portfolio is not designed with professional help, it might also back fire.
(Also read my previous article titled “The Unsung Hero of India’s Investment Universe”)….
HAPPY SIP INVESTING….

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