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SIP of Unhappiness

Systematic Investment Plan investors must not be very happy. Most SIPs on mutual funds, if started from Jan 1, 2006 when the Sensex was 9500 and the Nifty 3000, would be quite unfortunately negative in returns at this point.

From BlueChip’s SIP Calculator, checking with an SIP of Rs. 10,000 since Jan 1, 2006 – a period of 30 months – gives the following returns (as of Jun 27):

  • HDFC Equity: -1.15%
  • Reliance Vision: -2.04%
  • Franklin India Bluechip: -0.64%
  • SBI Magnum Global: -7.86%
  • Reliance Growth: +10.23%

Most large cap funds have returned negative results, and Reliance Growth seems indeed like a knight in shining armour here.

It’s strange though, because in the 30 months, only around 12 months have been spent ABOVE the current value of 14,000 on the Sensex. That means more than half the months the Nifty has been below current levels, and yet, the SIP was negative?

The reason is that the Nifty went MUCH higher, plus a lot of fees got deducted from the higher price points, therefore the bad return. In fact your performance would be worse if you had considered entry loads – which would take away 2.25% every month.

If you had invested in the Nifty BEES, an exchange traded low cost fund, you would have made +0.3% (inclusive of a dividend in Jan 07).

Worse than SIPs are those that have invested in ULIPs. Not only have they performed (largely) worse than mutual funds, they also have so many costs that investors have lost much more money.

What would be better? Not even buy-and-hold works – the best thing is to time the market. I have always said that, and I have done well for it. I understand it is not possible for everyone to do as much research as I do on the markets, but that is the job of the mutual fund managers. Surprisingly, they have failed at it, very miserably indeed.

That’s also because they have no incentive to outperform. They only make a percentage of assets, no? Why would they care to make more money than the markets, or lose less? The folks that can do that probably joined PMS firms – and even THOSE have underperformed. So where are the good managers? Tell us your stories.

  • Anonymous says:

    >Hi i really like reading your blog.

    One argument i heard on TV which favoured ULIP was as it is taken with a view that it is insurance policy. So there would be not a much pressure of redemption on it.
    Since the retail guy would get the insurance benfit on it.

    By the way i lost a bundle in tech fund in 2000. ( I invested in around feb & march 2000 ) touchwood

  • Anonymous says:

    >Forgot to add that the argument was since the retail won’t wanna lose the insurance so he will stay invested.

    Because of that the fund manager can invest aggresively with having a longer term outlook.

    It is really bit off topic, but what the hell.

  • Anonymous says:

    >You hit the nail on the head. Timing is important, let experts or asset allocators say anything. Especially in Emerging Markets where the market depth is shallow timing is the only thing favouring small investors.

    It remains to be seen how this combination of Hyperinflation in Food and Commodities and deflation in asset prices will play out. China should be thanked for bringing the Greatest Depression and World Hyperinflation.

  • Sandeep says:

    >Nice post and good link for calculating SIP returns!.

    btw ..although timing of market may not be feasible for everyone, but at the same time exiting the market timely when things are downturn is definitely a good idea!. Those who exited in Jan or even March-08 are better off than who could not do it till today.

    Other learning from this downturn is that one must keep small objective(say 10-15% return) and exit when that happens 🙂

  • Anonymous says:

    >Hi Deepak,
    Is it possible by your system to catch an uptrend just before the stock price surges by a 10 to 20 % over a entire week?
    By this way we can time the buying and selling of stocks…


  • Anonymous says:

    >Hello Deepak,
    I would strongly disagree when you say mutual funds have no good fund managers. Franklin has Sukumar Rajah and HDFC has Prashant Jain and both are seasoned players. However, it is a shame that nobody could even beat the market by 2 percentage points let alone big numbers like 4 or 5. Now for pureplay retail people where do they go? FDs are useless (real rate <0), FMPs just ok and MIP slightly better. 3 friends of mine are into PMS and I can tell you for a fact that as investor of Franklin Bluechip and HDFC Equity I am better off. What's your take? Stop existing SIPs? Then where to invest? Maybe direct equity makes sense right now.


  • Deepak Shenoy says:

    >anon1: You may be right but two fundas: most ulips were sold with investment in mind, not insurance. And second, the insurance component was usually so low (like 5 lakh cover for someone paying 1 lakh a year in premium) that it doesn’t matter.

    Anon2: I think we should blame the whole world, not just China…it was financed by America and Europe, invested in through Japan and Australia and finally even we in India rode the wave! Everyone has their finger in the pie…rotten as it is now…

    sandeep: I wish people had exited in Jan or March – but literally nobody I know has, including family 🙁 You can’t really keep profit targets unless you have smaller stop losses as well…

  • Deepak Shenoy says:

    >Arpan: Short term funds (< 1 year paper) and floaters are good as interest rates increase. I wish I could say good things about Prashant Jain or Sukumar Rajah, but their performance does not quite enthrall their audience. They may be fantastic people – and their hands are tied in long only funds. But their funds are down, and down hard, and even something as simple as a hedge would have been kind to them.

  • Anonymous says:

    >Any rationale for choosing Jan 2006? For, it you choose Jan 2005 or 2004 etc. the results change dramatically. Anyway, the return from equity or equity MFs need to be considered from a five or ten year point of view. Try that and see the results. Randomly chosen dates will give you random results.

  • Rohit Chauhan says:

    A single data point is not sufficient to arrive at a conclusion about mutual funds. if you had done the same analysis last year, a lot of funds were outperforming the index.
    So the time period you choose would influence your analysis a lot

    market timing is a very enticing proposition. The point is how many people do it successfully …and if you are not a full time investor, you will get it wrong more often.


  • Anonymous says:

    >Sorry folks my index funds and my arbitrage funds have done OK. Although I lost money in Index funds in the recent downturn, I was well compensated by Arbitage Funds (especially last one month). I downsized my portfolio from 70% equity to 15% equity (from Jan to Mar). My equities are only in Index Funds. My fixed income portfolio consists of Arbitrage Funds and Floaters. I think I have some reasons to smile considering How the Rajah’s and Jains have been performing vis-s-vis Index Funds. They are charging about 2% fees as against 0.75% for my Index Funds and in exchange performing poorly. It is a disgrace.

  • Deepak Shenoy says:

    >Anon: Jan 2006 came because a friend told me he started in Jan 2006 and was now negative. I couldn’t believe it, and hence the study.

    Yes the numbers could change but I doubt they will be in the favour of the managers versus the nifty – other than Reliance Growth very few long term funds have done a good job since the beginning of this bull run.

    I don’t subscribe to the 5 or 10 year funda. When I did the analysis for three months people said 1 year, then at 1 year people said 3, and now I’m not listening to all that. 30 months is enough time, thank you very much.

    If anyone finds different results in 5 or 10 year time frames that would be good to see – I would also then include entry loads (2.25%?) for funds and brokerage (0.5%) for the Nifty BeES and then compare. Results will be very eye opening, I’m sure.

    Rohit: I don’t know, I would like to see hwo many funds beat the market last year also, post entry loads, with an SIP. In fact it may be interesting to rank funds on a rolling time period basis.

    Market timing isn’t entirely about taking the absolute top or bottom. It could be 10% away from the top too…or simply a breach of a strogn trend indicator like the 200 day moving average. Of course as you said and as I did above, not many people have the time to do it. Still, it’s the best way; doesn’t mean anyone can do it. Still, we seem to spend more time understand the features of ourmobile phones befoer we buy, than analysing the investments we make…

  • Rohit Chauhan says:

    >Hi deepak
    When you look at performance makes a difference. some funds do well for a period, then underperform for a subsequent period. it is preferable to look how the fund has done over a bear and a bull cycle. In addition you would want to look at 5-10 year time frame to decide if the manager has skill or was just lucky

    for ex: look the bluechip example from your post.

    see this link

    look at the funds performance under annual returns
    2003 – 120% v/s 72% of index
    2004 – 24% v/s 10% of index
    2005,2006,2007 – same as index and this year worse than the index.

    so either the manager has lost his touch or was unlucky ..thats a subjective call. but this fund has a 26% p.a return since inception ..15 years of outperformance of around 15% per annum compared to the index. that is unlikely to be a fluke and i would give this fund the benefit of doubt.

  • prax says:

    >MFs and especially insurance and ulips have been mis sold by agents to gullible investors. As Brokerages have shrunk from 4 to 6% in the 90s to 1 and 2% – ulip still is the number one earner for brokers because of the upfront lump sum brokerage they can expect to earn.

    Very insightful analysis , and i fully agree that timing is vital as all markets work in cycles.

    I fully agree that there is little left on the table for an investor after brokerages,loads and taxes, especially if his entry or exit is badly timed.

    Etfs definitely score better
    bcase in a mf u can’t even time an exit intra day as there are daily navs – not live navs and when there are massive gyrations during a single day the intra day timing also matters.

    Sip and worse Ulip as an investment medium always fails to give gains when one starts in a rising market and does not exit close to peaks.

  • kalyan says:

    >I think Mutual Fund managers are at a disadvantage compared to retail investors in terms of timing the market. An individual investor can short the market or completely sit on cash whereas an MF manager will always be invested and there are restrictions on shorting etc. An individual has the advantage of working with smaller capitals also. But MFs are the only way for passive investors to participate in the market. On a side note comparison of ULIPS is irrelevant. ULIPS have different objective according to insurance companies. Personally I think if you are thinking about Investments, ULIPS are strict no as they are insurance products and if you are thinking about insurance they are strict no as they are investment products also.

  • Deepak Shenoy says:

    >rohit: I’ve invested (or actually family has) in the Bluechip fund – and to be honest their performance is not inspiring. When you look at past performance, outperformance should be well distributed in the curve. That they performed very well for the first 10 years and the last five were horrible indicates to me that something is no longer working, and they aren’t fixing it. Having said that it has fallen the least among most large cap funds – but that gives me little solace.

    2006 to now gives us three corrections and two bull cycles. Before 2000 that I know there was information assymetry so I would discount it (plus none of that performance seems to have been repeated!) I’m not sure about the 2000-2003 cycle, will have to check.

  • prax says:

    ur calls have consistently been vindicated since i have been reading your blog.
    do u want to stick ur head out and put a figure on where the markets will settle from here?
    and would u recommend a short from here when mkts are at 12990 ?

    The daily carnage should spoof whatever confidence is left out of the participants and make passive mf investors and people rethink on holding on to their investments

  • Deepak Shenoy says:

    >prax: thanks mate, just gotten lucky 🙂

    I’m short (because my system tells me to be) but it’s been three days now and I don’t want to recommend shorting since we are down 10% in three days!

    I think longer term should take index to 3000 levels (10K on the sensex) but it is ripe for an intermediate rally. I would say if 4500 is back its’ good to short, but otherwise, my suggestion for thismarket is – either trade it intraday, or take HUGELY speculative risks and be ready to lose a significant amount of money.

    Otherwise run to a short term debt fund (i have done this for my spare cash)

  • Siddharth says:

    You said intermediate rally. Is this accounting for the ECB rate decision this week, US employment data?
    For the intermediate rally to happen in India are you expecting further rate cuts from Helicopter Ben or ECB actions?

  • Deepak Shenoy says:

    >siddharth: No no, the reasons for a rally are evident AFTER a rally, not before it. This is just a technically oversold position which should provide some stability or upside until the averages catch up.

    If Mr. Ben or ECB do anything the effects aren’t going to be immediate – and markets will react either way, that’s inconsequential. RIght now the time looks ripe for a move up primarily because everyone is so bearish all of a sudden.

  • Siddharth says:

    thanks for your reply.
    Now this is off the OP, so pls excuse me, if not relevant.

    An article on web by Ila Patnaik.

    Excerpt from article “As a result we should expect to see business cycles in US and the rest of the world getting transmitted to India.”

    You said ‘all of a sudden’. But to be bearish there must be some reasons or plain FEAR.

    Precious metal is going up right now. The BKX index has gone below 60. and with the many things in US and EU coming out this week, market looks bearish and gold/oil bullish. Unless this induces positive confidence (short or long term)from the FED, ECB decisions, there may not be any positive outlook in Indian market immediately for upside?

    My concern is how this all will be inconsequential to economy in India, not only exports.
    P.S. Pls excuse my childish excursion in finance discussion!

  • yk says:

    >The statements are wrong. All the newspapers are in favour of ULIP. There are so many cursing news headlines for mutual funds, but ULIPs have always outperformed sensex. All the major MFs have lagged behind sensex in return.

  • Deepak Shenoy says:

    >yk: You got any data to back that up?

    All ULIPs do is take your money. They have underperformed EVERYTHING – after monthly fees, management fees, entry loads (commissions) and all that, they are doomed to failure.

    If any newspaper has an online link to it, please point me there – I would like to see it and check underlying data for myself.

    Remmber ULIPs dont’ have a comparable NAV because they cutinvestor’s units every month. In a mutual fund units are never deducted. But still I think NAV will be bad compared to MFs or the Nifty.

  • Mahendra Naik says:

    >Hi Deepak,

    The explanation is that markets have risen for 2 years during your 30 month review period and have fallen for 6 months. The basis of SIP investing is that you buy more when markets are down. But in this case investors have not had the opportunity to buy at lower levels for sustained periods. secondly the real benefit of SIP accrues when markets rise after underperforming for long periods, provided that an investor has the guts to buy during prolonged bear phases. We will know how SIP’ did only after the markets stage a rally.

  • Anonymous says:

    >Loads of feedback, looks like you’ve touched a very sensitive chord Deepak. On the topic of investments, I thought I’d post this in — my bank XYZ(let’s keep them anon for now) has launched a private equity kind of fund where they’d invest into real estate in tier-2/3 cities only. However, instead of asking for a lumpsum, they’re asking ~1 lakh/quarter for 6-8 quarter or so. Kind of SIP but not quite. I am not sure — at one end this looks good ’cause you can’t buy anything in realty that cheap but on the other hand the macros in India are all suggesting a slowdown. For the interest of myself and your readers, care to comment on such an investment proposition as an alternative to equities? Also, there seem to be a new set of funds planning to invest in commodity hubs like Russia. Interesting ploy?


  • Deepak Shenoy says:

    >mahendra: Not quite true. They fell for three months in mid 2006 (30% fall) then a 10% fall in feb 2007 and a further 10% in Oct 2007, and the big kahoona in Jan 2008.

    Still, the market’s up 40% morethan it was in Jan 06.

    ANd SIPs were sold on the funda that regardless of market moves you’d come out positive. Look at today and the fact that you are 40% above what you started and your SIPs are down – in fact even SIPping in the Nifty would not have yielded good returns.

    I think there is a serious problem with SIPs – a better way would be to do value averaging instead, something I have mentioned in earlier posts. Also you can do timing – both of which would have yielded results.

    Arpan: I wouldn’t reco housing for the next five years…the downcycle has just started. Commodities: it’s too late, gotta get in only in a bear market.

  • Chinmay says:

    >If you see the mutual fund activity over the last one year, there will be several cases of reckless investments found. Some of them are at

  • Raj Gopal Vuppala says:

    The principal behind SIP is “Rupee Cost Averaging”. You are buying more when the markets are lower and buying less when the markets are high. Even with SIP, though entry time does not matter, the time spent investing does matter. The longer the time frame one is investing, the better the averaging. On a longer time frame of 5+ years you come to a stage where the market price is always higher that your average cost price. If a person has a three year time frame for SIP, there is absolutely no guarantee that he won’t incur losses. But if the same person has a time frame of 5+ years, the chances of him losing principal are bleak due to better averaging.

    Here is the some data that I was able to gather using the SIP calculator at

    Returns in Franklin Bluechip (an average performing fund)
    1 Year SIP return = -56.06%
    2 Year SIP return = -11.86%
    3 Year SIP return = + 4.04%
    4 Year SIP return = +13.85%
    5 Year SIP return = +19.20%
    6 Year SIP return = +24.95%
    7 Year SIP return = +26.24%

    Returns in Reliance Growth (One of the better performing funds)

    1 Year SIP return = -40.86%
    2 Year SIP return = + 1.05%
    3 Year SIP return = +13.02%
    4 Year SIP return = +24.31%
    5 Year SIP return = +30.92%
    6 Year SIP return = +36.95%
    7 Year SIP return = +39.04%

    The following is the information from about diversified equity mutual funds.

    Year 2003
    Diversified Equity = 111.37% (Category Average)
    Best Fund = 177.13% (Franklin Prima)
    Nifty = 71.90%
    Sensex = 72.89%

    Year 2004
    Diversified Equity = 26.42% (Category Average)
    Best Fund = 68.59% (Magnum Global)
    Nifty = 10.68%
    Sensex = 13.03%

    Year 2005
    Diversified Equity = 46.57% (Category Average)
    Best Fund = 80.21% (Magnum Emerging Business)
    Nifty = 36.34%
    Sensex = 42.33%

    Year 2006
    Diversified Equity = 34.72% (Category Average)
    Best Fund = 61.48% (UTI Infrastructure)
    Nifty = 39.83%
    Sensex = 46.70%

    Year 2007
    Diversified Equity = 59.52% (Category Average)
    Best Fund = 111.44% (JM Basic)
    Nifty = 54.77%
    Sensex = 47.15%

    Of the five years, except in the year 2006, the diversified equity category as an average performed better than Sensex and Nifty. So investing in mutual funds is not a bad option.


  • Andrew jones says:

    >It's a well written article.It is really booming these days.Hence,we should try it out……