SIP’s gain popularity, has the risk come down?

PopularFollowing the good run up our stock markets had in 2014-15, the confidence among retail investors have increased considerably. On a normal course when the markets correct, even though it is a regular process and will get back and move up soon, people used to get weary of losses. They used to stop SIP’s and pull out their investments.

And most of the times the timing would be against them, when the decision is made to get in, that would be the time when the markets were exhausted and begin to move down, and when they decide that, enough of the pain from losses and get out, that will be the time the markets will begin to move up into a new bull market.

No one can time the markets perfectly, so, one of the methods to ensure that we are there for the bigger haul is to stay invested, and for that SIP is a best way to go. It helps us have the cost averaging, and help us achieve a better return than the benchmark, say the SENSEX.

For the first time in the history of the Indian markets, retail investors have maturity; they have decided to stay invested using the SIP route. There is a 26% increase in SIP’s registered this year and the average live SIP has moved up from ₹3368.40 to ₹3449.80.

The increase in investments to Equities is not only because people have become smart, it also because of the fact that other investment avenues like banks and real estate are having lack lustre performance and is forcing them to move into equities. Unlike the earlier years, if the retail investors stay invested for a longer period, they will taste the richness of equities and will continue to have it as one of their preferred investment asset.

 

What about the risk?

As we have the advantage of cost averaging which will get us more units when the markets are down and lesser units when the markets are up, so that we are at the receiving end always. Does that mean the investment is zero risk?

No, risk still remains the same, there was a research made on SIP’s with the SENSEX for a 10 year period, the returns were not phenomenal, it was the same as the index. Then, fund managers complained, “Don’t check the returns with the SENSEX, instead use the NAV of any Mutual Fund”. So it went on and got tracked using the oldest NAV based Mutual Fund scheme in India – UTI Mastershare. The chart above shows that, it is mimicking the SENSEX, the returns were from a low of -6% to a high of 28%, proving that Long term SIP’s are not risk free.

 

How we can make it at our advantage?

Select the top performing schemes for investment and let the SIP done only for 12 months. After 12 months, check whether the same schemes continue to lead, if not, move to the next best scheme. The existing investment shall continue to be invested until the last SIP clears the exit load factor, then move the funds to the prevailing top performing funds.  Rarely do Mutual Fund schemes continue to be top performers for more than 12-15 months, leaderships change as the markets move.

making-changes-without-harming-your-brand-1920x800

This activity will force a person to review his investments at least once a year and also ensure that the growth is healthy. If there is a prolonged downtrend in the markets, one can even move from Equity to debt and return back to Equity when the bullish sentiments comes back, which will require a little extra knowledge to do, which your fund manager can help you with.

So, any investment, if left for a longer period assuming that it will grow on its own, will only give average returns, which will mostly match the prevailing bank rates and would always be below the inflation rate.

TVS Motor clocks 36% growth in Nov

jupiter_1586436fTVS Motors had a sales growth of 93% in the last quarter. November growth is 36%,Two-wheeler sales jumped 36 percent to 2.1 lakh units while scooter sales increased by 62 percent to 62,223 units and motorcycle sales rose by 41 percent to 86,424 units during the same period. “Three wheeler sales of the company registered an increase of 44 percent, growing from 6,304 units in November 2013 to 9,067 units in November 2014, said the company in its filing.

This stock was an investment opportunity in July this year. It came to buy when the stock was at 150 levels. As of this writing the stocks has made 50% return on investment and it looks like continuing the growth path.

Another notable point here in TVS Motors is the Three wheeler sales, there has been talks going on in the markets that Autos will lose their market share against the competition from taxis, Autos are charging Rs. 12 per km now. Taxis that are operating at Rs. 14 per km has began to get as low as Rs. 10 per km. There is a high possibility that people will pick a taxi instead of an Auto, which has many drawbacks. With bumper to bumper traffic across all the major cities in our country, people will be forced to use more taxis for their commuting requirements, this means more business for Auto manufacturers.

This would mean lower sales for Three wheelers, but, TVS has managed to corner some of their competitors market share to increase their sales volumes. This show a great business strategy in place for the company.When a company has a good sales and earnings growth, it is eventually going add value to the stock. And has all the likeliness to run up and give good returns to its investors.

How long this growth is going to continue? That we may not know, but, as long as the growth is strong, if we are invested, we can reap rich rewards. A car that is going at a 60 km speed in 4th gear cannot come to an abrupt stop, it has to at least get down to the speed at 2nd gear and gradually slowdown. And this slowdown is going to be visible, which can be utilized as an opportunity to take exit and book profit.

classic350_right-side_blue_600x463_motorcycle

One other stock that has been consistently having high growth is Eicher Motors, in the November month Eicher Motors, the Royal Enfield maker, sold 27,542 motorcycles in November, registering a growth of 52 percent compared to 18,131 units in November 2013. This stock came into high growth when the stock price was Rs. 1180, way back in 2010. From then on, it was a no look back for the stock.

In January 2014, the stock was quoting at Rs.5000 and today it is inching closer to Rs. 15000. A gain of 200% in 11 months, and the performance is going to continue. People normally shy away from stocks that are priced so high, complementing them with a low priced stock, but, price reflects the value the stock has in it. No smart investor will buy a stock at this price if there is no value.

Automobile stocks began to show strength in their earnings early this year and have rewarded their investors richly so far. But investing in any Auto stocks will not give us such high returns, specific stocks like Eicher, TVS have great potential in them. We need to identify such growth stocks for investment, which brings down the risk of stock investing almost to zero.