Are Mutual Fund SIPs Suitable for Disciplined Long-Term Investors?

Should disciplined long-term goal based investors use mutual fund systematic investment plans (SIPs) or rupee cost averaging?

This question has been bugging me for long and personally, I hate a SIP I think it is a product tailor made for mutual fund distributors and sold to lazy people.

Should intelligent investors buy SIPs? Here is why my vote is a vehement NO.

I PE-based investing

Investing has to be goal-based. If you have no expense in mind, why would you need the money anyway! Even for the idiots who think they have no goal in mind, retirement is a  goal!

Very few of us can afford to plan  for a goal with realistic inflation and  a constant monthly investment. The latter would be too big for comfort. So the only way out is to include a realistic rate at which investment could increase each year hopefully as income increase

Such an assumption if followed through can dramatically reduce the monthly investment needed in the first few years of investment.

For example, if 5 Crores is required after 25 years with 10% returns, you would need to invest 42361 each month if you don’t increase investments each year.

If you can manage to increase investments by 10% each year you only need to 16919 in the first year.  An incredible 60% decrease! Only after 10 years will this the monthly investment exceed the constant investment amount of 42361!

The downside is that after 15 years, the monthly investment will be as high as 70675.

This may or may not be a downside with respect to affordability but with respect to a SIP - assuming one is started, and topped up at 10% in the same SIP or with additional ones (think about all the work involved in setting that up!).

Why use a hypothetical example? Let me let you my story. When I started out investing in mutual funds, I had a SIP of Rs. 1500. Today on a good month, my mf investments can be higher than 65% of the 80C deduction limit.

Do you expect me to invest this sum in stocks each month regardless of index valuations?  That is, do you expect me to invest when the index PE is 10 (an excellent idea) or when it is 15 (decent idea)  or when it is  25 (a terrible idea) all in the name of rupee cost averaging?

Each monthly investment in a mutual fund either manually or via a SIP grows in its own pace. If you invest when the market is overvalued (high PE ratio), that instalment is likely to provide a lower return and pull down the net CAGR.

When investing at high index PE values (>22 or more) has historically given poor returns, why should I invest monthly completely disregarding the market?

Why should I not time the market or the index?

Why invest when a monthly instalment is guaranteed to provide low returns? Why not pool the uninvested sum together, wait for a month or two, wait for the index to come down and invest all of it in one go?

Suppose I start a SIP in HDFC Top 200 on April 3rd 2006. I invest on the SIP date (3rd) each month only if the Sensex (or BSE 200) PE is lesser than 20.

If it is higher than 20, I do not invest that month and keep aside the money. If the PE is less than 20 on the 3rd of next month, I invest the money kept aside as well as that months instalment. If there is a gap of 8 months in investing because the PE is greater than 20, in the 9th month, I invest all the uninvested money in one go.

I would like to call this SI-PE!  Obviously this is a crude strategy and one designed for back-testing in Excel. In reality, one can monitor the PE more closely and invest at times that are more opportune.

An SI-PE from 3rd Apr 2006 till date in HDFC Top 200 would have got a higher return by nearly 1% and an extra corpus of about 3K.

This is how the investments would have grown. SIP or SI-PE total investment amounts are identical.  Each point in the graph is an investment.

sipe-1

 

Notice that SI-PE skips investing whenever the SIP value exhibits a peak. There are periods of time when the Index PE is greater than 20. Even by skipping several instalments, and postponing investments, the SIP-PE value is higher. Notice the lower volatility in the investment.

I am not tying to prove the superiority of SI-PE. The cut off value of PE = has been arbitrarily chosen with not much thought. Perhaps you could do better if the cut off was higher ~22.

One could argue that I am using the benefit of hindsight to state all this. Well, all of equity investing is based on hindsight. That is if past long-term returns are not so promising I will not be investing in equity in the first place!

SI-PE is a dumb method used for back-testing. I am trying to point out that one can do so much better than a SIP.

Why invest when the market is overvalued and lower the net CAGR? Why not wait for a more opportune time?

In the present example the difference between SIP and SI-PE is not significant and rupee cost averaging is a pretty decent concept.  My point is, one could do much better by manually tracking the index PE and invest on any  convenient date (instead of only the SIP date as assumed in SI-PE)

What about longer durations?

If I have invested in Franklin India Blue Chip via SI-PE right from inception (1st Sep. 1995), I would gain about 50,000 more than a conventional SIP. Interestingly the SI-PE XIRR (19%) is only 0.4% higher than the SIP XIRR (18.6%).

If I have increased my investment each year by 10%, also known as a growth-SIP, the SI-PE method would have given me ~ Rs. 85,836 more. The XIRR of the growth-SIP is 18.4% while the XIRR of growth SI-PE is 18.9%

Again rupee cost averaging does work in the long run. No question about that.

sipe-2

 

However, notice the evolution of the investments along with XIRR returns of each growth SIP investment. The horizontal line is the net XIRR  = 18.4%.

A SIP investment done whenever the index PE > 20 has an XIRR much lower than  the net returns.

Notice the boxed region. I could go from points 1 to 2 with just three growth SI-PE investments compared to monthly investments which do nothing but bring down the net returns.

Yes rupee cost averaging is a powerful technique and definitely works. No doubt about that. My question is this. Why not help the average by investing according to the PE instead of blindly following a SIP? That way you are avoiding potential bad apples.

I would like to reiterate that I am not claiming superiority of the SI-PE method. I am only pointing out that one can do much better without a SIP.

The SI-PE assumes  that the uninvested instalments are pooled together, kept at zero interest and ploughed back into equity when PE falls below 20.

This is a crude approach and can be improved in so many ways. The pooled instalments can be invested in an ultra-short

term fund or liquid fund to get a little extra in case the wait for the PE to fall is long.

Alternatively, one could invest that amount into the debt component of the portfolio.

My point is, if your SIP amount is huge, why invest it regardless of the market situation when there are proven approaches to limit the portfolio volatility and gain at least a little more bang for the buck?

It is the investor’s duty to make their money work harder. The gains could be much more than what I have depicted in this crude approach.

II Rebalancing investments

Any long term folio must be rebalanced to lower volatility. Instead of locking money to SIPs, if the money is free to be invested anywhere, rebalancing can be done by adjusting investments instead of holdings. This frees me from tax and exit load issues.

See results from this wonderful study:

Some analysis using long term equity and debt funds in India (Part 2) The result of this study can be viewed here

Some analysis using long term equity and debt funds in India (Part 3) The result of this study can be viewed here

Obviously if you lock your money in a SIP you cannot do this!

III Unmatched flexibility

Most investors when they start SIPs and add funds later are clueless about a diversified equity folio. Use this tool to find out how diversified your equity portfolio is!

If the money were not locked in SIPs, the investments can easily be adjusted to make it more diversified and balanced. Read this wonderful suggestion given by Ramesh to me.

Same is true about fund performance. Lock your money in a SIP and you will have to go through the trouble of stopping it if the fund underperforms. Without a SIP you are free to invest in a better performing fund. What to know which funds are the laggards in your folio, use this automated mutual fund tracker.

The flexibility offered by manual monthly investing is matchless. Online investing in a mutual fund will take a 2-3 minutes per transaction in a low speed broadband connection. When I got my first online account I did not even know mutual fund distributors existed! So I contacted the AMC directly (pun intended!) for investing!

I have been manually investing for over 4 years now. I invest on days when the market drops by 1% for the first two weeks of the month. If it does not, I invest any way. This is not for higher gains. This is a regimen to train my mind to love market corrections

Unfortunately, the rally in March and April has upset my plans! I have just kept my investments on hold waiting for a correction to move in.

Since my investment amount is getting large, I am uncomfortable about investing it during rallies. How much difference will this make in the long run? Hard to tell! Life does not pan out like an Excel sheet. It entirely depends on how I play it.

Not using SIPs put me in charge.  As a control freak I relish that idea.

I can pick and choose my funds and time. If I had locked all money in SIPs I would been too lazy to stop them and start investing in Quantum Long Term Equity or PPFAS LTVF – the stars of my folio. I could never have aggressively invested in both these funds which have not only stabilised my folio but have provided me with the necessary diversification.

My goal is to ensure that my net folio returns (estimated by the automated tracker), which have recently become healthy double digit numbers, stay that way.

I am not blindly relying on an averaging technique for that. Just cramps my style.

Rupee cost averaging is a proven idea and is likely to beat inflation in the long run. no argument there. However,  it is not good enough for me.

What do you think? Do you agree?  If you agree, please do not stop existing SIPs on account of me without proper planning. Check your portfolio health, check equity overlap and then make an informed choice.

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73 thoughts on “Are Mutual Fund SIPs Suitable for Disciplined Long-Term Investors?

    1. pattu

      Ashal, I am not proposing any method. Just asking a question, why invest when the market is overvalued and bound to correct soon. Hence needed this elaborate SI-PE to show that some SIP installments are wasted.
      In the VIp the disadvantage is the expectation of an annual return which enormously increases the investment amt for minimal benefit. IN the case of SI-PE the investment amount is the same. All you are doing is delaying your investment or investing elsewhere.

      Reply
    1. pattu

      Ashal, I am not proposing any method. Just asking a question, why invest when the market is overvalued and bound to correct soon. Hence needed this elaborate SI-PE to show that some SIP installments are wasted.
      In the VIp the disadvantage is the expectation of an annual return which enormously increases the investment amt for minimal benefit. IN the case of SI-PE the investment amount is the same. All you are doing is delaying your investment or investing elsewhere.

      Reply
  1. Vince

    No Ashal, the VIP/VTP plan only looks at averaging the cost of purchase. Also, one has to manually go and stop the VIP/VTP if needed.

    With this post, Pattu sir has read my mind! I do not do SIPs. Like he said, i feels like its for someone who is lazy.
    I prefer to time the markets a little with bulk amounts, and this "SI-PE" method seems decent for me to try.

    Pattu, could you share an excel which pulls the PE and Index value? I wish to start using this method.

    Reply
    1. pattu

      Thanks Vince. You don't need to follow SI-PE as proposed. This is just use to prove a point that some SIP installments are done at the wrong time. Just do you own thing. I have PE downloader coming up.

      Reply
  2. Vince

    No Ashal, the VIP/VTP plan only looks at averaging the cost of purchase. Also, one has to manually go and stop the VIP/VTP if needed.

    With this post, Pattu sir has read my mind! I do not do SIPs. Like he said, i feels like its for someone who is lazy.
    I prefer to time the markets a little with bulk amounts, and this "SI-PE" method seems decent for me to try.

    Pattu, could you share an excel which pulls the PE and Index value? I wish to start using this method.

    Reply
    1. pattu

      Thanks Vince. You don't need to follow SI-PE as proposed. This is just use to prove a point that some SIP installments are done at the wrong time. Just do you own thing. I have PE downloader coming up.

      Reply
  3. Nihar

    Sir, being a retired person I hv been following this system, (cannot say I time the market well but try to stay away when the markets are overheating like now!!)..like Mr Vince suggested a tool to get Index PE's would be appreciated...Thnks

    Reply
  4. Nihar

    Sir, being a retired person I hv been following this system, (cannot say I time the market well but try to stay away when the markets are overheating like now!!)..like Mr Vince suggested a tool to get Index PE's would be appreciated...Thnks

    Reply
    1. pattu

      ha ha! Not worth it Viren. It is only an Excel backtracking tool. You can do much better than this in reality if you avoid investing when the market is overvalued.

      Reply
    1. pattu

      ha ha! Not worth it Viren. It is only an Excel backtracking tool. You can do much better than this in reality if you avoid investing when the market is overvalued.

      Reply
  5. Bijesh

    Dear Pattu, The concept of “SI-PE” makes sense. I am investing through SIPs now and was thinking of disabling the SIPs for couple of months,as the markets are at their peak. This blog came at the right time :).

    I think along with "SI-PE" we should pump more money into the fund when the index PE goes really low.

    By the way, is there a good source where I can track the Index PE or do you already have a Excel for that 🙂 ?

    Reply
    1. pattu

      Hi Bijesh, Yes if you can get hold of some cash, investing more at low PEs is a good idea. I will post a PE tool soon.

      Reply
      1. Sandeep

        You have to track index PE regularly.MF's are designed for market novices.PE may not really come down for longer periods.

        Reply
  6. Bijesh

    Dear Pattu, The concept of “SI-PE” makes sense. I am investing through SIPs now and was thinking of disabling the SIPs for couple of months,as the markets are at their peak. This blog came at the right time :).

    I think along with "SI-PE" we should pump more money into the fund when the index PE goes really low.

    By the way, is there a good source where I can track the Index PE or do you already have a Excel for that 🙂 ?

    Reply
    1. pattu

      Hi Bijesh, Yes if you can get hold of some cash, investing more at low PEs is a good idea. I will post a PE tool soon.

      Reply
  7. Mohana Ganesh

    I agree with you. For a disciplined person like you this works. But for the younger generation SIP is a forced saving. They will never take the pain of watching the PE and investing when it is low.

    Reply
    1. VINAY MAITHANI

      I am not sure about the definition of younger generation, but yes am sure if they read this blog for once or are members of AIFW or have Economic times app on their phone, then am sure they would impulsively like to check the PE (if somewhere tracking it exists) just like their facebook account for 'likes'.

      I also thought the same about them but have come across many twenty somethings in last few months at various personal finance sites & programs 🙂

      Youngistaan meri jaan !

      Reply
      1. pattu

        Hi Vinay, I understand many young people are interested in such matters. It is the nature of their actions that worries me sometimes.

        Reply
  8. Mohana Ganesh

    I agree with you. For a disciplined person like you this works. But for the younger generation SIP is a forced saving. They will never take the pain of watching the PE and investing when it is low.

    Reply
    1. VINAY MAITHANI

      I am not sure about the definition of younger generation, but yes am sure if they read this blog for once or are members of AIFW or have Economic times app on their phone, then am sure they would impulsively like to check the PE (if somewhere tracking it exists) just like their facebook account for 'likes'.

      I also thought the same about them but have come across many twenty somethings in last few months at various personal finance sites & programs 🙂

      Youngistaan meri jaan !

      Reply
      1. pattu

        Hi Vinay, I understand many young people are interested in such matters. It is the nature of their actions that worries me sometimes.

        Reply
  9. Kunal Lal

    Hello Pattu Sir,

    The analysis is very rich with the message that rupee cost averaging doesn't work as much as active investments when the market is down. Thanks for that.

    However, I want an input on how do you invest when the market is down.I use FundsIndia for some SIPs and am shifting increasing towards it as and when SIPs with my pvt broker's platform end. I do see that FundsIndia offers VIP and VTP, but from the comment above from Vince it seems that is not what you mean. So, finally, can you confirm if I can initiate this active SIP-PE investing through FundsIndia? If not, how to get it done?

    Kunal

    Reply
    1. pattu

      VIT/VTP is very very different from what I am saying. I am against the idea of VIT as most often it will involved investing more than SIP for higher returns. See this
      http://freefincal.com/revisiting-the-sip-vs-vip-debate-with-fundsindias-report-on-vip-investing/
      and
      http://freefincal.com/comparing-sip-vip-investment-strategies-with-sensex-monthly-returns/
      I am referring to manual investing through fundsindia or directly via AMCs when the market PE is not too high. SI-PE is not really a technique that I am recommending in the form it appears in the post. It is an idea that each reader, if convinced, must apply in their style.

      Reply
  10. Kunal Lal

    Hello Pattu Sir,

    The analysis is very rich with the message that rupee cost averaging doesn't work as much as active investments when the market is down. Thanks for that.

    However, I want an input on how do you invest when the market is down.I use FundsIndia for some SIPs and am shifting increasing towards it as and when SIPs with my pvt broker's platform end. I do see that FundsIndia offers VIP and VTP, but from the comment above from Vince it seems that is not what you mean. So, finally, can you confirm if I can initiate this active SIP-PE investing through FundsIndia? If not, how to get it done?

    Kunal

    Reply
    1. pattu

      VIT/VTP is very very different from what I am saying. I am against the idea of VIT as most often it will involved investing more than SIP for higher returns. See this
      http://freefincal.com/revisiting-the-sip-vs-vip-debate-with-fundsindias-report-on-vip-investing/
      and
      http://freefincal.com/comparing-sip-vip-investment-strategies-with-sensex-monthly-returns/
      I am referring to manual investing through fundsindia or directly via AMCs when the market PE is not too high. SI-PE is not really a technique that I am recommending in the form it appears in the post. It is an idea that each reader, if convinced, must apply in their style.

      Reply
  11. Arun

    Here's are two possibly naive thoughts.
    First, this strategy seems to depend a lot on how much in sync the fund and the index are. Specifically, wouldn't it better to use the fund's PE ratio instead of the sensex PE for deciding whether to invest, or is that what you do already? Or is it the case that the fund's PE is calculated with lot more hysteresis than the index PE.

    Second, implicit in this approach is the idea that there will be reversion to less frothy index PE values in the short-term, no? If there is a prolonged bull run, what happens? Do we sit out or get in and book profits? Like you rightly mentioned, the peak now can be a trough over the longer-term. Thanks, Arun

    Reply
    1. pattu

      Thanks for views. Most funds will have decent overlap with some benchmark or the other. There could be exceptions like PPFAS LTVF because of wide diversification. I somehow cannot relate to Fund PEs like I can with index PEs. Don't ask why. Besides they are not available on a daily basis.

      In case of a prolong bull run, your strategy will depend on the value of your holdings. If it is significant, I will invest elsewhere. If it small, you can invest in equity.
      I am not in favor of random profit booking. I am only suggesting that we not invest large sums when the market is overvalued.

      Reply
  12. Arun

    Here's are two possibly naive thoughts.
    First, this strategy seems to depend a lot on how much in sync the fund and the index are. Specifically, wouldn't it better to use the fund's PE ratio instead of the sensex PE for deciding whether to invest, or is that what you do already? Or is it the case that the fund's PE is calculated with lot more hysteresis than the index PE.

    Second, implicit in this approach is the idea that there will be reversion to less frothy index PE values in the short-term, no? If there is a prolonged bull run, what happens? Do we sit out or get in and book profits? Like you rightly mentioned, the peak now can be a trough over the longer-term. Thanks, Arun

    Reply
    1. pattu

      Thanks for views. Most funds will have decent overlap with some benchmark or the other. There could be exceptions like PPFAS LTVF because of wide diversification. I somehow cannot relate to Fund PEs like I can with index PEs. Don't ask why. Besides they are not available on a daily basis.

      In case of a prolong bull run, your strategy will depend on the value of your holdings. If it is significant, I will invest elsewhere. If it small, you can invest in equity.
      I am not in favor of random profit booking. I am only suggesting that we not invest large sums when the market is overvalued.

      Reply
  13. Swaminathan R

    I personally am not in favour of SIP and see it as a scheme which ensures that the AMCs get their monthly contributions regularly. But since I don't follow the SIP method, I now see its benifits more clearly. The problem comes from the flawed way we reason with ourselves to postpone an investment. When the market goes up, we postpone the investment thinking we will wait till the market corrects. But when the market goes down, we think that we don't want to catch a falling knife and wait till it falls and reaches a plateau. But with the money from FIIs flowing freely, the market suddenly makes a U turn and is right back up or even higher. As a result you neither invest in the rising market and nor in the falling market and land up sitting on cash. Like the proverbial " grass is greener.. ", I wonder how easy life would have been if I had just signed up for a SIP!

    Reply
    1. pattu

      I see your point. Which I there should only be an upper cut off for the PE. I still believe in monthly averaging just want to keep the overvalued purchases at bay this way. Once we start investing, we should never look at other folios or investments. We focus on growing our grass and hope for the best.

      Reply
  14. Swaminathan R

    I personally am not in favour of SIP and see it as a scheme which ensures that the AMCs get their monthly contributions regularly. But since I don't follow the SIP method, I now see its benifits more clearly. The problem comes from the flawed way we reason with ourselves to postpone an investment. When the market goes up, we postpone the investment thinking we will wait till the market corrects. But when the market goes down, we think that we don't want to catch a falling knife and wait till it falls and reaches a plateau. But with the money from FIIs flowing freely, the market suddenly makes a U turn and is right back up or even higher. As a result you neither invest in the rising market and nor in the falling market and land up sitting on cash. Like the proverbial " grass is greener.. ", I wonder how easy life would have been if I had just signed up for a SIP!

    Reply
    1. pattu

      I see your point. Which I there should only be an upper cut off for the PE. I still believe in monthly averaging just want to keep the overvalued purchases at bay this way. Once we start investing, we should never look at other folios or investments. We focus on growing our grass and hope for the best.

      Reply
  15. Anand Balakrishnan

    Even for disciplined investors this is quite a task Pattu.

    During prolonged bull run one will miss lower entry points for sure.

    It can happen so the markets may come down and the investor may be traveling abroad and forgotten their banking password. Even if staying in country trying to reset a psu bank password is in general quite a task. The markets can come to lower levels and go back to higher PEs sometimes rather very quickly.

    It can so happen that a prolonged illness can make someone miss the market bottom.

    Automated investment (Stp/sip) lets you stay disciplined.

    My ideal path would be continue Stp/sip no matte what and then add more money during days of 2+% fall in the market and pump more with every fall of 500 points.

    Reply
  16. Rama

    Thanks Pattu for another insightful article.

    I think SIPs work for me. Discipline is implicit in them. Of course, the question of not wanting to continue SIPs when the markets are high arose many times. In the past, I did not do SIPs for a very long time owing to this question (What Swaminathan described above reflects my past experience perfectly).

    Another assumption I make to justify myself is that that the MF manager should be taking cash calls when markets are high - I do not want to mess around on top of those calls - not sure if is in fact the case though.

    Reply
  17. Rama

    Thanks Pattu for another insightful article.

    I think SIPs work for me. Discipline is implicit in them. Of course, the question of not wanting to continue SIPs when the markets are high arose many times. In the past, I did not do SIPs for a very long time owing to this question (What Swaminathan described above reflects my past experience perfectly).

    Another assumption I make to justify myself is that that the MF manager should be taking cash calls when markets are high - I do not want to mess around on top of those calls - not sure if is in fact the case though.

    Reply
  18. krishna

    Pattu,

    This works for you becoz u umderstand what PE is about, for a novice like me we have to invest monthly even if it is not on a fixed date

    Reply
    1. pattu

      Well, all you need to do is to learn. It takes not more than 30 mins to learn what PE is. At the end of the day, we will have to do what we are comfortable with.

      Reply
  19. krishna

    Pattu,

    This works for you becoz u umderstand what PE is about, for a novice like me we have to invest monthly even if it is not on a fixed date

    Reply
    1. pattu

      Well, all you need to do is to learn. It takes not more than 30 mins to learn what PE is. At the end of the day, we will have to do what we are comfortable with.

      Reply
  20. Viren Phansalkar

    @Krishna:
    Even if you do not learn the entire PE thing, you can just watch the sensex value. If it is less than 1% of yesterday's value, invest. If not, stay in cash. You can do this entire month and extinguish your quota of investment per month.
    Pattu can correct me here

    Reply
  21. Viren Phansalkar

    @Krishna:
    Even if you do not learn the entire PE thing, you can just watch the sensex value. If it is less than 1% of yesterday's value, invest. If not, stay in cash. You can do this entire month and extinguish your quota of investment per month.
    Pattu can correct me here

    Reply
      1. Krishna

        Pattu/Viren,

        So we should wait till market to drop at least by 1% to invest ,if the market stays up for more than 2- 3 months u mean we should wait longer?

        Reply
        1. pattu

          Krishna, if you have just started investing in MFs, just focus on monthly investing. All these gymnastics can be done once your folio is fat enough ( at least 10s of Lakhs).

          Reply
          1. pattu

            okay! See what I am suggesting is not a formula. I am only saying there is no need to invest when the market is overvalued. If the market is not overvalued, you can invest when there is a 1-2% correction in the markets. If it does not happen for weeks together, you can either invest anyway or put if off for a while. Either approach will work. You need to evolve your own system.

          2. Krishna

            Okay Pattu thanks for the suggestion , i will do the same frm next month onwards will wait for market correction in a month

    1. pattu

      If you mean market parameters, then I am no expert on this. Also it would tough to do so wrt SIPs.

      Reply
  22. Hariharan Ragunathan

    I get our point and it would work better. I asked the questions to myself - will I stay disciplined to follow this month on month, without getting distracted with all the shiny objects that comes along. I might miss out months, so the compromise for me as you say - is to go with little lower returns but a proven approach especially if I am thinking to stay disciplined for years to come 🙂 .

    Reply
  23. abhijitbuchake

    Sir,

    I have few doubts.

    1. When PE is above the predecided value (say 20), we stop investing. What are the chances that NAV of the MF still advances by the time PE comes down? I mean, NAV when PE is below 20 is higher than when I stopped the SIP for the month when PE was above 20.
    2. If we do not set up an SIP for a specific date but decide to track daily PE and invest when feel appropriate, how could we come to the conclusion that current PE could be in the lower range for this month?

    Reply
    1. pattu

      Yes (1) is possible. To minimise this one will have to use the right index.

      (2) I think it makes no sense to track PE daily. Perhaps weekly. In any case one can track at each months salary when it is time to invest. I generally invest on days when the index dips by 1-2%. I only look at PE from time to time, like when there is a huge increase in the index.

      Reply
  24. Arun

    Hello sir,

    I would like a clarification on this statement: " I invest on days when the market drops by 1% for the first two weeks of the month." Specifically, what exactly is your mechanism for implementing this policy ?

    Do you mean that you look at intra-day market movements on day X and then invest before 2PM on day X? Or do you observe a 2% fall in the closing index value from day X-1 to day X, and then invest on day X+1 ?

    In both cases, there is a likelihood that the index could have run up from where you observed the dip, no ? If so, is your assumption that the up-tick could not happen within a day or across two days ?

    I'd appreciate your response on this. I have been thinking about this given the run-up in the market, but wasn't sure of how exactly to implement the "enter the market on dips" theory.

    Thanks,
    Arun

    Reply
    1. pattu

      HI Arun, I was doing that when the market was moving sideways. After the Feb. when the bull run began, I have been delaying it much longer. Typically, the lowest in a couple of weeks or a month. If you look at the 3m view in google finance, I would have invested during the big dips. Just visually see and invest. Sometimes can go wrong. Dont worry about it too much.

      Reply
  25. dev

    Hi,

    I am 30 yr old married guy and having 3 Month old daughter. I earn 80k Per month and having below investment

    Term Insurance - HDFC Click2Protect Plus of 1 Cr (Taken Last month)
    LIC Whole Life Plan -(Taken in 2012) Premium around 24K/yr for 12 yrs to get 40Lac at Age 79.
    Health Insurance - ICICI PruLife Health Saver Plan for 5L per Year for Me, Wife and Baby.

    PF - Around 45000 per Annum + Equivalent Employer contribution (Since last 1 Yr)

    HL - around 4Lac pending. It will be cleared by June 2016.

    SIPs investment of total Rs. 8000/- per Month as below (All are planned for long term for around 20yr considering daughter's education and marriege)
    On my name
    1) UTI midcap fund (G) Rs. 2000/- (From last 5 yrs)
    2) ICICI Tax Plan Regular (G) Rs. 2000/- (from last 2 Month)
    3) DSP Black Rock Tax saver fund Reg (G) Rs. 2000/- (from last 2 Month)
    On Wife name
    1) ICICI Pru value Discovery Reg (G) Rs. 1000/- (From last 4 yrs)
    2) HDFC Equity fund (G) Rs. 1000/- (From last 5 yrs)

    Please suggest on above investments and what kind of additional investment planning/modification should I do and where ?

    Reply

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