We keep getting all kinds of requests from our clients and once in a while, we get a request to help a client whose friend has invested in Mutual Funds and needs help in knowing the current value and redeeming the funds as funds are needed.
Invariably, among the list of funds, we get to see... some common names are
MORGAN STANLEY GROWTH FUND
SBI MAGNUM FUND
BIRLA TAX SAVER 96 FUND
ICICI VALUE DISCOVERY FUND
DSP TIGER FUND
HDFC PRUDENCE FUND
RELIANCE GROWTH FUND
99 out of 100 times, these investments would have yielded a decent 14% plus returns.
But here we discuss a fund that went through a rough patch. A very rough one at that.
The investor had invested in JM Core 11 Fund (now JM Focused Fund) in 2 ways.
a) Lumpsum of Rs.1 lakh
b) SIP of Rs.1000
The Lumpsum of Rs.1 lakh invested in March 2008, after 14 plus years, has
grown to (hold your breath) Rs.1.25 lakhs!!
Yes, a grand growth of Rs.25,000 on Rs.1 lakh after 14 full years.
The Annualised return works out to 1.51%
Yes. I am indeed serious.
Then what about his SIP investment of Rs.1000?
The magic of SIP:
The magic of SIP is now revealed.
The investor has invested only Rs.1000 per month in JM Focussed fund and his total outflow has been Rs1,75,000. Can you imagine the return?
His investment of Rs.1,75,000 is yielding him Rs.4,00,069 giving an annualised return of 10.68%
The lumpsum returns work out less than even an SB returns but the in the same fund, a SIP investment has resulted in a DOUBLE-DIGIT return of 10.68%.
This return beats fixed deposit returns and bank savings bank returns by a handsome margin.
While this return may be lower than the return earned by other funds it is not too bad either.
Keeping faith in a good fund house and a diversified quality fund is still the best way to make your money grow.
HOW DID THIS HUGE VARIATION HAPPEN IN THE RETURNS?
LET’S DEEP DIVE AND UNDERSTAND
The volatility in the markets and the huge movements in the NAV of a fund actually is hugely beneficial for a monthly SIP investor.
Let’s understand with the same JM FOCUSED FUND example...
As you can see from the attached image, a sip of Rs.1000 even after 6 years was showing NEGATIVE returns.
Rs.72,000 investment was showing a loss of Rs.4,000 !!(after 6 full years)
decent positive returns.
After a good 1 year of positive 2014, the fund shows that
an investment of Rs.84,000 was showing a return of Rs.1,25,000
a jump from Rs.68,147 to Rs.1,25,489!
A jump of almost 90% plus in the value of your investment.
So, if your funds are not showing good returns and markets are volatile / showing downward bias...
please DO NOT STOP YOUR SIP
CONTINUE YOUR SIP
and if possible,
TOP UP YOUR SIP
BTW, as mentioned earlier...
from inception, an investment of Rs.1,000 in this fund has seen an outgo of Rs.1,75,000 and the valuation today (15th Sep 2022) is Rs.4,00,000 giving an XIRR of 10.68%
Before going ahead, let me assure you that Fund Houses do Transform and move up
I have so many funds which have struggled to even come to their face value of Rs.10 NAV for many years after their launch.
HDFC TAX SAVER FUND
ICICI TECHNOLOGY FUND (see the image attached taken from my book DON’T RETIRE RICH)
Do read the book and give your valuable feedback and request you to post positive comments on Amazon. https://amzn.to/3cHUM6M/
And all SIP investors in all these funds actually have more money than even lumpsum investors.
I am not at all telling you to skip Lumpsum. My point is… SIP DOES HELP YOU IN AVERAGING YOUR NAV faster, and quicker and is capable of giving you BETTER returns.
The example performance of the JM FOCUSED FUND is a classic example of how a Fund House has swallowed its bitter poison and has taken great pains to put the right systems, and processes in place.
Whenever we speak to investors, the investors tend to point out the JM CORE 11 Fund (now called the JM FOCUSED FUND) and its below-par performance.
examined further and did a detailed study and that JM Focused was an
exaggerated aberration in JM’s product offering.
Yes JM Focused Fund has had a turbulent past but it has definitely stabilised now thanks to the systems, process, and research the fund house has put in place.
And most importantly getting top quality knowledgeable investment gurus like Amitabh Mohanty and Satish Ramanathan joining JM Mutual Fund has already yielded results.
Their JM FLEXICAP has been consistently in Q2 and even Q1
Let me assure you, THIS IS NOT A PAID ARTICLE. The reason for taking the name of a Fund House and putting the right picture in front of you is only because lay investors tend to have a bad image of the entire fund house on basis of 1 single bad fund. Every fund will have its share of good and bad funds and every fund has its performance cycle, do not ignore a fund house based on 1 fund’s experience.
My simple point is...
JM Focused Fund has seen the worst of times and investment in such a fund even in its WORST period would have still yielded a decent DOUBLE-DIGIT return which is better than any of the DEBT funds making it a case that
IF YOU ARE LOOKING FOR GOOD
RETURNS OVER LONG PERIODS, EVEN A WRONG CHOICE IN AN EQUITY FUND WILL GI
VE YOU MORE RETURN THAN THE BEST OF DEBT FUND
This huge variation between 1.51% CAGR and 10.68% CAGR is what got me thinking and I dug deeper and my study revealed what we all already know SIP IS AN AMAZING TOOL FOR WEALTH CREATION.
Finally, do not forget
EVEN A WORST EQUITY FUND RETURNS MAKES MUCH BETTER SENSE THAN THE BEST DEBT FUND, especially if the time horizon is 10 years plus
AMFI Registered Mutual Fund Distributor
All the best,
Good article and insightful. Good reaserch on SIP VS Lumpsum.ReplyDelete
Thank you for your comments SrinivasDelete