METHOD TO MADNESS OF INVESTING IN EQUITY-FOR ULTRA CONSERVATIVE INVESTORS
Hi,
Kindly refer to my article on “METHOD TO MADNESS OF INVESTING IN EQUITY” published on my blog : blog.msjcapital.com on February 13’2009. The said strategy spells out how one can invest in Liquid schemes and on weekly basis transfer fixed amount of funds to equity schemes which will be divided equally from first week of April to mid February i.e. approx. 42 equal instalments. In this scenario the investor will be transferring both appreciation on liquid schemes as well as principal. Hence, as can be seen, inspite of positive historical data provided by me ( except FY 2008-2009) , extremely conservative investors would still be wary of adopting this strategy to avoid quarter on quarter MTM losses that might arise under this strategy.
For such investors I would recommend the following strategy ( the said strategy was suggested by me for a number of years for my very conservative corporate clients with extremely good results) of parking principal sum in Liquid plus scheme and transferring only the weekly appreciation of the liquid scheme into equity scheme. Thanks to the efforts of MSJ Capital, most of the AMCs have this facility of giving one time instruction of transferring appreciation from liquid/liquid plus scheme into their respective equity schemes.
HOW DOES THIS WORK:
- Park principal sum say Rs.10 crs in Liquid Plus scheme- Growth option
- Give one time instruction to the AMC to transfer on weekly basis appreciation of the said liquid plus scheme to their equity scheme
- At no point in time will your principal get eroded as you are only transferring appreciation and not touching the principal
- Said instructions will be for transfer from April first week to Mid February next
- All units collected in equity schemes will be switched in Mid February back to Liquid Scheme
- Start the whole process on higher base ( Original Rs.10 crs plus value of equity switched back into liquid by mid February) next year from April onwards. Till then let the funds continue to stay invested in Liquid scheme. This way at the end of the year, a corporate investor will not show any equity investments on the Balance Sheet closing date of March every year
- Since original investment in Liquid scheme is in growth option, after completion of one year, the entire investment will have the benefit of long term capital gains tax. This is a very tax efficient way of investing
HAS THIS STRATEGY GIVEN RETURNS HIGHER THAN LIQUID SCHEME ON YEAR ON YEAR OR ON THREE YEAR ROLLING RETURNS BASIS?
Following charts based on actual data of Templeton TMA & appreciation transfer into Templeton Bluechip will prove that this strategy is capable of earning anywhere between 1-5% p.a. additional on YoY or on 3 year rolling return basis. This is huge difference on corporate treasuries as these days it is difficult to make decent returns on any of the asset classes.
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YEAR ON YEAR RETURNS
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From
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To
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Amount Invested
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Final Value
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Return
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Liquid Fund Return
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Difference
|
|
Apr-99
|
Feb-00
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10,000,000
|
11,327,110
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15.58
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8.34
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7.24
|
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Apr-00
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Feb-01
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10,000,000
|
10,882,678
|
10.36
|
8.61
|
1.75
|
|
Apr-01
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Feb-02
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10,000,000
|
10,831,391
|
9.76
|
7.36
|
2.40
|
|
Apr-02
|
Feb-03
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10,000,000
|
10,654,982
|
7.69
|
6.37
|
1.32
|
|
Apr-03
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Feb-04
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10,000,000
|
10,735,606
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8.63
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4.53
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4.10
|
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Apr-04
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Feb-05
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10,000,000
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10,497,388
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5.84
|
4.15
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1.69
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Apr-05
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Feb-06
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10,000,000
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10,586,589
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6.88
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4.52
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2.36
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Apr-06
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Feb-07
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10,000,000
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10,653,390
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7.67
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5.88
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1.79
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Apr-07
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Feb-08
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10,000,000
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10,702,421
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8.24
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6.80
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1.44
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Apr-08
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Feb-09
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10,000,000
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10,610,642
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7.17
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7.74
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-0.57
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| Retuns Annualised Compunded
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THREE YEAR ROLLING RETURNS
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From
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To
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Amount Invested
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Final Value
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Return
|
Liquid Fund Return
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Difference
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|
Apr-99
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Feb-02
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10,000,000
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13,614,697
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12.53
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9.32
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3.21
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Apr-00
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Feb-03
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10,000,000
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12,787,853
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9.65
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8.48
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1.17
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Apr-01
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Feb-04
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10,000,000
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12,666,426
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9.22
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6.86
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2.36
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Apr-02
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Feb-05
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10,000,000
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12,255,382
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7.80
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5.64
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2.16
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Apr-03
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Feb-06
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10,000,000
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12,104,485
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7.28
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4.97
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2.31
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Apr-04
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Feb-07
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10,000,000
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12,028,075
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7.03
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5.49
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1.54
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Apr-05
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Feb-08
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10,000,000
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12,299,080
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7.96
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6.53
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1.43
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Apr-06
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Feb-09
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10,000,000
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12,303,893
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7.96
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7.74
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0.22
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Apr-07
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Feb-09*
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10,000,000
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11,419,162
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7.49
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8.22
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-0.73
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Apr-08
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Feb-09*
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10,000,000
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10,610,642
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6.84
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7.74
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-0.90
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Retuns Annualised Compunded
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* Not Completed
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Only year where this strategy has made marginal lower returns ( 0.57% lower) than liquid scheme is in FY 2008-2009 for obvious reason. Inspite of that, as you can see, at the end of the year ( due to strategy of transferring only appreciation) your investment value is Rs.10 crs plus and not Rs.10 crs minus.
I personally feel that in these uncertain times and due to lower base of SENSEX, this is the only strategy which is capable of a) safeguarding your capital & b) generating decent returns through the concept of rupee cost averaging.
Comments
Nice site. There
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