9 Painful Years are Already Over, Future is Highly Rewarding for Those Who Understand Numbers and our Market!!

9 Painful Years are Already Over, Future is Highly Rewarding for Those Who Understand Numbers and our Market!!

by B. Padmanaban, CFP^CM

Certified Financial Planner

www.fortuneplanners.com

We have completed 9 years today , after reaching Sensex (hit the highest level) on 8th January 2008 which is 20,873. Last Friday it has closed 26,760 which are only 28% in absolute returns in the 9 years. In the same period Mid cap delivered 26% and small cap delivered -8%. 

08-01-08	20,873	9,817	13,516
06-01-17	26,760	12,321	12,440
Absolute Returns	28.20%	25.51%	-7.96%

9 years or 108 months, let's assume somebody invested Rs. 10,80,000 (this is nothing but 10k invested through SIP in 108 months) at lump sum exactly at the peak of the market and another investor who invested through systematic investment plan the same amount Rs. 10.8 lakhs over a period of 108 months and let's look at the return.

Majority of the large cap funds have delivered more returns in the lump sum mode, even though it was invested at peak compared to the SIP for the last 9 years. Whereas mid and small cap delivered more returns in SIP than the lump sum. See the table below.

B. Padmanaban,
CFP., Chennai

Contrarily, many feel that lump sum is always risky and SIP is always best!

Large cap Funds delivered superior return in lump sum even at Peak than SIP

HDFC Top 200
08-01-08	172.54	108	Months
06-01-17	355.96	1080000	Investment
Multiplication Factor	2.06	1942401	SIP Returns
CAGR Lump sum	9.27%	15.17%	CAGR
Lump sum Return		2228102
HDFC Equity
08-01-08	225.2	108	Months
06-01-17	483.72	1080000	Investment
Multiplication Factor	2.15	2065047	SIP Returns
CAGR Lump sum	9.81%	16.42%	CAGR
Lump sum Return		2319794
Franklin India Bluechip
08-01-08	194.7	108	Months
06-01-17	372.36	1080000	Investment
Multiplication Factor	1.91	1922089	SIP Returns
CAGR Lump sum	8.26%	14.95%	CAGR
Lump sum Return		2065479
ICICI Pru Top 100
08-01-08	137.09	108	Months
06-01-17	262.05	1080000	Investment
Multiplication Factor	1.91	2026032	SIP Returns
CAGR Lump sum	8.26%	16.03%	CAGR
Lump sum Return		2064439
BSL Frontline Equity
08-01-08	82	108	Months
06-01-17	172.18	1080000	Investment
Multiplication Factor	2.10	2104355	SIP Returns
CAGR Lump sum	9.51%	16.80%	CAGR
Lump sum Return		2267737
UTI Equity Fund
08-01-08	49.18	108	Months
06-01-17	101.93	1080000	Investment
Multiplication Factor	2.07	1998275	SIP Returns
CAGR Lump sum	9.33%	15.75%	CAGR
Lump sum Return		2238398

Mid and small cap delivered SIP returns are superior to lump sum

IDFC Premier most of the times it was shut for lump sum and many data point suggest that lump sum return in this funds are much superior than the SIP!!!

IDFC Premier Equity
08-01-08	28.09	108	Months
06-01-17	72.57	1080000	Investment
Multiplication Factor	2.58	2447814	Current Value
CAGR Lump sum	12.32%	19.81%	CAGR
Lump sum Return		2790160
HDFC Midcap Opportunities
08-01-08	13.31	108	Months
06-01-17	43.36	1080000	Investment
Multiplication Factor	3.26	3040152	Current Value
CAGR Lump sum	15.56%	23.99%	CAGR
Lump sum Return		3518317
Sundaram Select Midcap
08-01-08	149.28	108	Months
06-01-17	395.66	1080000	Investment
Multiplication Factor	2.65	2864647	Current Value
CAGR Lump sum	12.68%	22.86%	CAGR
Lump sum Return		2862492
Franklin India Prima Fund
08-01-08	314.69	108	Months
06-01-17	746.71	1080000	Investment
Multiplication Factor	2.37	2838985	Current Value
CAGR Lump sum	11.16%	22.69%	CAGR
Lump sum Return		2562671
L&T Midcap Fund
08-01-08	44.3	108	Months
06-01-17	101.51	1080000	Investment
Multiplication Factor	2.29	2787797	Current Value
CAGR Lump sum	10.69%	22.34%	CAGR
Lump sum Return		2474736
DSPBR Microcap Fund
08-01-08	16.147	108	Months
06-01-17	51.06	1080000	Investment
Multiplication Factor	3.16	3721682	Current Value
CAGR Lump sum	15.14%	27.78%	CAGR SIP
Lump sum Return		3415173
Franklin India Smaller Companies
12-11-08	17.08	108	Months
06-01-17	45.39	1080000	Investment
Multiplication Factor	2.66	3245339	Current Value
CAGR Lump sum	12.71%	25.23%	CAGR SIP
Lump sum Return		2870094

Sensex values are flat for the last 6 years!

Date	Sensex
08-Jan-08	20,873
10-Nov-10	20,875
03-Dec-13	20,854
25-Feb-14	20,852

My Observation as follows…

1.     As far as Index levels are concerned mid and small cap has delivered less return than the large cap in the last 9 years. But, none of you invested in the index fund and you always invested in a diversified mutual fund, whose returns are much superior returns to the large cap.

2.     The easy way to get attention today is bad mouth about mid and small cap space. Many used to compare mid and small cap valuations with infra funds in 2008. Mid and small cap space is also diversified fund only and it is not sector fund, the only difference is, it will have more volatile than the large cap because of the smaller size. But, the returns are phenomenal.

3.     The only advise we need to give it to all our investor is, it has more volatile and do not worry about this and you make use of this volatility, in case, if you have money at that time. Midcap is not riskier than large cap as long as 3 plus year investment horizon is concerned. Volatility is not risk!!!

4.     Sensex is flat for almost 6 years and in the last 3 years also it has delivered only 28%. Next 3 years will be much rewarding if somebody go through the data, rather than keep talking about macro/micro and valuations! Demonetization, 7^th pay commission, good monsoon also boost the economy in the coming months.

5.     The leadership is shifted from large cap to quality mid cap and that is the reason its valuations are more than the large cap. More opportunities keep coming in that space only. Large cap is highly researched and opportunity is not much. Less valuation does not guarantee growth but high valuations WILL, at times!

6.     Whenever we want to take some decision which determines our future, we need to spend good amount of time. If we look at the last market crash, we could infer some meaningful things which none of the news captured. 

Date	Sensex	BSE Midcap	BSE Small cap
08-Jan-08	20,873	9,817	13,516
09-Mar-09	8160	2553	2,866
Fall from the Peak	-60.91%	-73.99%	-78.80%
09-Mar-10	17,052	6,734	8,530
Gain in 1 Year	108.97%	163.77%	197.63%
Overall Fall	-18.31%	-31.40%	-36.89%

Midcap and small cap has fallen much higher than the large cap, but exactly one year after the fall, mid and small cap bounced much higher than the large cap, still mid and small could not catch up in the immediate year.

If we know this, we could invest heavily whenever mid and small cap falls more than the large cap.

This data will certainly help even the history repeat itself we can invest much better because of the past experience.

7. We are constantly trained and advised that we should not expect the same returns what we got it in the past. At the same time everyone is talking about the next trillion dollar economy we will reach much faster. Everybody believes the next 10 years is going to be big disruptions the way we have seen in the past. As a growing economy what is wrong in expecting the same or better than the past.

8. Many used to compare US data, we may take some clue out of it, but our market is totally different. Number of investors participating in the capital market and their behavior is not the same as our market.

9. Advisory profession is a very challenging one and it requires lot of efforts, passion and understanding numbers. Many of the advisors are not willing to put such efforts.

10. When we venture into something, we always look positive and hope that it will be fruitful, contrarily when people invested in the market they keep on looking for all the negative news and trying to react as much as possible is the reason for many not making money. That is why you need an advisor to handhold you to reach all your financial goals.

B. Padmanaban, CFP^CM

Certified Financial Planner

www.fortuneplanners.com

9884349173

padmanaban@fortuneplanners.com

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