A Superior Investing Process – Do a DIP SIP

Did you know that the DIP SIP is the most efficient way to invest in the stock market?

We at JainMatrix Investments recommend investors to invest in equities in a Direct Equity – DIP SIP mode. The equity markets have fallen sharply this year, and this is a good time to invest. Let us explain this process.

What is a SIP?

A Systematic Investment Plan or SIP is a smart mode for investing money which allows you to invest a certain pre-determined amount at regular intervals (weekly, monthly, quarterly, etc.). A SIP is a planned approach towards investments where the saving habit becomes a routine. The SIP approach can be used for any investment vehicle, such as FDs, MFs, direct equity, etc.

Why Equity investments?

Historically investments in equity stocks have given higher returns amongst all the other asset classes if investment was done with discipline and a long term time horizon. See an assets map where we present a number of asset classes and the Risk-Return trade off, Fig 1.

Fig 1 – Comparison of Asset Classes, JainMatrix Investments

Fig 1 – Comparison of Asset Classes (click on image to expand)

What are the benefits of an equity SIP?

  1. Ride the Volatile Equity class and reduce Risk with Rupee Cost Averaging
  2. SIP can be started with very small amount of money, and increased at a later date
  3. Timing the market is not necessary. But gains are best when markets are low.
  4. Long term financial goals can be aligned with SIP
  5. Disciplined approach towards Investment helps in controlling the emotions
  6. Investments get aligned with income flow and it becomes a regular habit

The JainMatrix Investments Model Portfolios

JainMatrix Investments launched its Large Cap Model Portfolio in Dec 2012 and its Mid & Small Cap Model Portfolio in Feb 2013. These two portfolios are chosen from over a 100 stocks that we have researched over the years. The main reason for two separate model portfolios is to offer simple investment choices, and to align with the risk appetite of investors.

  • The Large Cap Model Portfolio consists of 7 stock picks from 7 different sectors. The firms chosen are identified as high potential large caps with good fundamentals. The minimum investment period is 2 years. The objective is to outperform the Sensex/ Nifty by 5-10%.
  • The 7 stock picks from the Mid & Small Cap Model Portfolio are from 3-4 high potential sectors. These firms have very good growth potential irrespective of mid, small or micro size. The minimum investment period is 1 year. The objective is massive out-performance of Mid/Small cap Indices.

DIP SIP and equity MF SIP compared

Now that you have understood the equity SIP mode of investment, it is imperative to compare DIP SIP – investing directly in equity with equity Mutual Funds.

1 – Expense Ratios

Investments in equity Mutual Funds are expensive in terms of the expense ratio cost incurred to the investor. Expense ratio states how much you pay a MF in percentage term every year to manage your money. This includes the fund management fee, agent commissions, registrar fees, and selling and promoting expenses. The Expense Ratio that is disclosed every March and September as a percentage of the funds net assets. As you grow your investment portfolio over the long-term, a high expense ratio will eat into your returns through power of compounding. The expense ratio of debt MF’s is typically in the range of 0-1% whereas it is in the range of 1-3% for equity MF’s. See Fig 1.

Exhibit 2 – Expense ratio of MFs, JainMatrix Investments

Exhibit 2 – Expense ratio of MFs (Source: Finalaya.com)

In comparison to this, the JainMatrix Investment Service has a fixed/ flat annual charge.

2 – Performance

Now let’s have a look at various index returns, top performing large, mid & small cap MF’s and the performance of JainMatrix Investments model portfolios.

Top 10 Large Cap MFs over last 3 years

JainMatrix Investments

Fig 3 – The top 10 Large Cap MFs over 3 years (Source Value Research)

The best performing large cap MF over a 3 year period is Birla Sun Life Frontlife Equity Fund which has given investors a 13.7% simple annual returns. In the same period the SENSEX has given investors a simple annual return of 7.27% and JainMatrix Investments Large Cap Model Portfolio has given a simple annual return of 13.3%. Let us understand this graphically in Fig 4.

JainMatrix Investments

Fig 4 – The Sensex, MF and JainMatrix LC Portfolios (Source Value Research)

Top 5 Mid Cap and Small Cap MFs over last 3 years

JainMatrix Investments

Exhibit 5 – Return and expense ratio of top 5 Mid and Small Cap MFs (Source Value Research)

  • The best performing Mid-Cap MF over a 3 year period is UTI Mid Cap Fund with a 28.08% simple annual returns. In this period, the S&P BSE Mid-Cap gave returns of 17.14%.
  • The best performing Small-Cap MF over a 3 year period SBI Small & Midcap Fund gave 33.23% simple annual returns. In this period the S&P BSE Small Cap gave a return of 18.22%
  • The JainMatrix Mid & Small Cap portfolio gave a simple annual return of 47%. See Fig 6.
JainMatrix Investments

Fig 6 – The Indices, MF and JainMatrix MSC returns (Source Value Research)

3 – Control

Investors in MFs hand over the investment performance to the portfolio management team of the MF. They can now decide only to buy, hold or exit. However in the case of the JM Model Portfolios, investors retain control over the purchases as the investments are in their own trading/ demat accounts. This offers additional flexibility to investors for both entry and exits.

4 – Liquidity

Liquidity is the investors ability to encash in the case of urgent need for money. MF’s can be closed ended MFs that will be locked in until maturity thereby removing chances of liquidity during the investment term. Thus if an investor wants the money immediately, then he/she would have to pay an exit load for the same which is again 1-3% of the invested amount. ELSS MFs are locked in for 3 years. Direct equity is very liquid as within 2-3 days the stock can be sold and the cash credited into the linked bank account. However from a tax perspective, the treatment is the same for direct equity and equity MFs. Long term capital gains kick in after 1 year of investing.

How to execute a DIP SIP?

Checklist for a Direct Market SIP:

  • You can use your current Online Trading account/ broker relationship for the DIP SIP. If you have to choose among your broker options, choose the one with lower brokerage or better ease of use.
  • Decide on the 5-7 stocks you will invest in.
  • Decide on the amount you will invest every month – here I would suggest you fix an amount in the range of Rs 5,000 to 50,000 and keep up this amount every month. Thumb rules here can be 10% of your take home salary or 50% of monthly savings.
  • Create a small calculation excel for helping you decide the actual number of shares to be bought. See section – Start Investing.
  • Decide a date for investing. If you are salaried, perhaps 2nd or 3rd every month is a good date as it is right after you have received your salary. Or any other convenient date. Keep a reminder for this.

Choose Your Stocks

This is an important step. My key principles in choosing the stocks are:

  • For a high stability low risk portfolio, choose large liquid blue chips.  They should be Nifty/ Sensex stocks. You do not want too much volatility in this investment.
  • For an aggressive higher risk portfolio, choose mid & small cap stocks with high potential.

Subscribe to JainMatrix Investments Investment Service to receive proven, high performing Model Portfolios

Start Investing

  • You are now on the day you are starting your DIP SIP, within trading hours.
  • Choose your DIP SIP portfolio of stocks. Lets say you chose the top 5 shares by mkt cap.
  • Lets say you have chosen the amount Rs. 30,000 to be invested every month for your DIP SIP.
  • Create a small excel – which can help you calculate the number of shares right now. See fig 7.
JainMatrix Investments

Fig 7 – Tool for DIP SIP purchase

  • Open the excel, do the calculation; then buy the DIP SIP through your broking account.
  • Your DIP SIP can be done in 10 minutes every month. 

Start your DIP SIP today. Subscribe to the JainMatrix – Investment Service to get our top performing Model Portfolios  and recommendations and you are ready to go.

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Happy Investing!!!!!

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DISCLAIMER

This document has been prepared by JainMatrix Investments Bangalore (JM), and is meant for use by the recipient only as information and is not for circulation. This document is not to be reported or copied or made available to others without prior permission of JM. It should not be considered or taken as an offer to sell or a solicitation to buy or sell any security. The information contained in this report has been obtained from sources that are considered to be reliable. However, JM has not independently verified the accuracy or completeness of the same. Neither JM nor any of its affiliates, its directors or its employees accepts any responsibility of whatsoever nature for the information, statements and opinion given, made available or expressed herein or for any omission therein. Recipients of this report should be aware that past performance is not necessarily a guide to future performance and value of investments can go down as well. The suitability or otherwise of any investments will depend upon the recipient’s particular circumstances and, in case of doubt, advice should be sought from an independent expert/advisor. Punit Jain has applied for certification under SEBI (Research Analysts) Regulations, 2014. Any questions should be directed to the director of JainMatrix Investments at punit.jain@jainmatrix.com .

JainMatrix Mid Cap Model Portfolio Update March 2013

……

JainMatrix Investments presented the Mid Cap Model Portfolio in Feb 2013. Its time to review the portfolio, understand the changes in this period, and continue with our planned investments wherever appropriate.

The seven (7) stocks recommended are tracked with updates on the following basis:

  • Q3FY13 updates
  • FY13 Budget effect
  • Any sharp price movements
  • Overall fundamentals

We are glad to note that this portfolio has outperformed the Indices in this short period.

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Disclaimer:

These reports and documents have been prepared by JainMatrix Investments Ltd. They are not to be copied, reused or made available to others without prior permission of JainMatrix Investments. Any questions should be directed to the director of JainMatrix Investments at punit.jain@jainmatrix.com

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Gold as an Investment – Should you buy Gold now?

September 2011

Introduction: Gold has been in the news of late for a number of reasons, including the recent steep rise in prices.

  • This metal caused a ‘gold rush’ – the migration in USA from East to unexplored West in the 1800s
  • It has been a currency and a store of value for man since centuries.
  • In the year 1971 a certain US president freed the US dollar from the Gold standard. Today 40 years on, the USD has fallen considerably in value, and leaders in the US have come full circle, and are mulling a return to this standard.

The main uses of Gold are:

  • A store of value. For governments, their currency is backed up by gold
  • For individuals – gold is bought in the form of jewellery and gold coins
  • Other minor uses like in electronics, computers, dental, idols, etc.
  • Investments in Gold – Commodity trading or ETFs

Some Perspectives: The fig 1 graph below shows that Gold has been ignored as a store of value in recent decades.

Gold as asset, jainmatrix investments

Fig 1 – Gold as asset – Click to enlarge image

The key factors that influence the price of Gold today are:

  • Financial uncertainties like Currency and Debt problems
  1. The US government has taken on too much debt to fund their domestic and international spending. The economy has been downgraded by S&P for this, and the USD is no longer a safe store of value.
  2. Unless the US debt situation recovers – unlikely given their monetary policy – gold will continue to be safe haven for governments in their Forex baskets.
  3. The European Union is also facing challenges due to economic slowdown and the inability of member countries to control government spending.
  4. Under such circumstances, Gold tends to appreciate
  • The developed economies of North America, Europe and Japan are not doing very well in 2011, with slow economic growth and high debt plaguing these countries
  • Individuals from India & China continue to buy gold. High inflation means that cash is losing value. Higher affluence means more spending in gifts and jewellery. Indian marriages will always need gold, right?

Price Action: Is it any wonder that the value of Gold has appreciated in recent times? See fig 2

Gold prices, jainmatrix investments

Fig 2 – Gold prices – Click to enlarge image

The trend, as we can see, is that Gold is appreciating.

The main question is, till when? The answer I feel is linked to the events in the two key developed regions of the global economy.

  • USA:  This country is struggling with a weak economy, high government expenditures, and high overall debt. The debt recently hit pre-set limits, and they had to raise the limits for the government to continue normal functioning
  1. Until the growth in debt is arrested – by both increased taxes and reduced spending, and the economy starts on the recovery process, Gold will be an important store of value in this, the largest economy with the greatest wealth
  • Europe: Iceland, Portugal, Spain and Italy have imbalances in their economies with low growth, high debt and deterioration in assets like real estate
  1. Germany and UK are seeing low growth
  2. As the common currency is the Euro the countries do not have the flexibility of devaluing their currency to battle internal economic ills
  3. There is now a tension in the European Union, and the challenge will be to repay debt and still keep these countries together through these tough times. It may take 1-2 years for the situation to stabilize. Until this happens, Gold will continue to be a safe haven

Projections and Investment advise:

  • Gold will appreciate for the next 1-2 years, until the above economic problems at least appear to be receding.
  • Gold price rise will gather momentum, till it ends with a sharp rapid peak.
  • Investors are advised to invest with a 1-2 year perspective.
  • Investments should be in monthly SIP form, and the recommended investment instruments are Gold ETFs, from companies like Kotak, UTI, Reliance, etc. (For more on SIP investing check article)

Risks:

  • Gold, unlike stocks is only a store of value. It does not give dividends. The investment in gold is not productively utilized.
  • The price of Gold has appreciated rapidly in the recent past. The peak followed by a change of direction can be rapid, and the fall very steep. Investors need to track headlines and prices and make an informed exit call.
  • Short term trading in gold has increased substantially, causing volatility in prices. This is an early indication of excessive interest in gold as an asset class
  • Check back on the website www.jainmatrix.com for updates.
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Disclaimer:

These reports and documents have been prepared by JainMatrix Investments Ltd. They are not to be copied, reused or made available to others without prior permission of JainMatrix Investments. Any questions should be directed to the director of JainMatrix Investments at punit.jain@jainmatrix.com

Also see: https://jainmatrix.wordpress.com/disclaimer/

For Long term investments start a direct market SIP

This article has been updated. Click on this link to see the latest version.

March 2016 – A Superior Investing Process – Do a DIP SIP

 

Jan 2011

  • The market indices have fallen, and it seems like a good time to invest?
  • But you’re not sure what to invest in? Should you choose just one or two stocks with good prospects, and invest a large sum?
  • Or should you just choose a Mutual Fund, and invest in a lump sum, or even a SIP?

I have another idea for you. Invest in a direct market SIP !!

By this I mean, use your current Online Trading & Demat account to buy 5-6 shares yourself in a systematic manner every month.

Comparisons of direct market SIP with a Mutual Fund:

  • Only initial charges of 0.5 to 0.75% which are the brokerage commissions + taxes, compared to 2.5% per annum, which are the normal Mutual Fund charges. This really adds up over the years.
  • A quick look at equity MFs performance over 3 years (from Value Research) shows that only 15/57 MFs outperformed the Nifty’s 5% gains over the last 3 years.
  • Instead of a decision on which MF, you have to only make an initial decision on the bunch of 5-6 stocks. I will help you through this also :-)
  • Utilize your online trading account better, and gain control over your investments !!

Comparison of direct market SIP with a lump sum in 1-2 direct stocks:

  • The market indices can fall further. A systematic investment every month will help you gain more from falls in the market
  • Do not try to time the market. Instead by investing systematically, you can beat the Sensex in terms of returns !!
  • Just one or two stocks for investing heavily – this may be too concentrated a portfolio. Even the largest and most stable stocks (think Reliance or DLF) can be victims of pockets of non performance, or worse, large unpredictable swings.

Comparison of direct market SIP and Brokerage Equity SIP:

  • Several brokerages  – ICICI direct and ShareKhan for sure – have introduced Equity SIP facility for customers.
  • They can specify the stocks and purchase monthly of a specified Value (of portfolio) or specified quantity (of shares)
  • Initial and recurring charges are identical
  • There have been doubts expressed about the brokerage’s transaction –  Bad Trade Execution/ buying into morning spike, etc. as expressed in this article – http://shabbir.in/why-no-stock-sip/
  • My feel is a Do-It-Yourself approach removes these doubts and gives some satisfaction (while taking just 10 minutes a month).
  • See fig 1 for a tabular comparison of above options
Comparison of SIP Options, JainMatrix Investments

Fig 1 – Comparison of SIP purchase options  (click image to enlarge)

Checklist for a direct market SIP:

  1. You will use your current Online Trading account/ broker relationship for this SIP. If you have to choose among your options, choose the one with lower brokerage.  Could be ICICI securities, or Kotak securities, or whatever.
  2. Decide on the 5-6 stocks you will invest in.  My help here – see next section – Choose your stocks.
  3. Decide on the amount you will invest every month – here I would suggest you fix an amount such as Rs 10,000 or 20,000 and keep up this amount every month.
  4. Create a small calculation excel for helping you decide the actual number of shares to be bought. See section – Here’s an example.
  5. Decide on a date for investing. If you are salaried, perhaps 2nd or 3rd every month is a good date as it is right after you have received your salary. Or any other convenient date. Keep a self reminder for this date.

Choose your stocks

This is an important first step. My key principles in choosing the stocks are:

  • Choose large liquid blue chips.  They should be Nifty/ Sensex stocks. You do not want too much volatility in your mutual fund.
  • The 5-6 stocks should be from different sectors. Bad news in one stock / sector should not affect the other.
  • These stocks should be solid businesses that are going strong even 10-15 years from now, as your SIP and asset building is for long term

My recommended stocks – choose only one per sector:

  • Banking – HDFC Bank or SBI
  • Automobiles – Tata Motors or Bajaj Auto
  • Capital Goods & Engineering – L&T
  • Information Technology – TCS or HCL Technologies
  • Oil & Gas – ONGC or Petronet LNG
  • Telecom – Bharti Airtel 
  • FMCG/ Food – Hindustan Lever or ITC

Returns from this approach.

  • Lets say you chose 5 stocks for your SIP – HDFC Bank, Infosys, L&T, ONGC and Bharti Airtel.
  • If you invested in these five on a monthly basis over the last 30 months, following above approach, you will get returns per fig 2
Portfolio vs Sensex, Jainmatrix Investments

Figure 2 – Comparison of  SIP Portfolio with Sensex

Here’s an example

  • Choose your MF portfolio from above recommended stocks
  • Next you have chosen Rs. 20,000 per month for your SIP.
  • Create a small excel  – which can help you calculate the number of shares to be bought every month. See fig 3. This will help do this easily in a few minutes
SIP calculation tool

Fig 3 – Tool for SIP purchase

  • Decide the date of the month you want to invest every month – say 2nd. Very important – stick to your monthly investing routine as far as possible.
  • There you go – you are all ready.
  • Happy Investing :-)

Performancing Metrics