A similar story unfolded in an asset class called Monthly Income Plans (MIPs). When markets corrected from a high of 20827 SENSEX levels reached sometime on January 07’2008 to a low of 8325 reached on March 2’2009; then bounced back from these levels back to around 21,004 levels on November 01’2010, this asset class performed extremely well during this bounce back period. Based purely on returns figure in that year, most advisors started recommending this asset class sometime in November-December 2010 after seeing handsome returns in this asset class. This is evident from the industry corpus growth in MIPs.

Also, as one can logically conclude, MIP as an asset class would have taken a beating during the equity meltdown phase from January 2008 to March 2009; would have performed very well from March 2009 to November 2010 & the once again corrected from then to now.

However, I have been recommending investment in equities thru strategy of Systematic Transfer Plan from Liquid to Equity. If one would have done this even from the peak of January 2008 & continued the same thru the volatile period of March 2009, then once again peaking in November 2010 & once again thru the downturn, returns in the said strategy v/s one time investment in either equity or MIP from January 2008 till May 31’2011 would have looked as follows:

Hence, as can be seen from above, certain asset classes become flavour of the season or a year or so & go out of flavour without giving adequate warning to the investors. As against that, strategies like SIPs or STPs can be an ongoing strategy which can act as flavours for all seasons & can bring a) discipline in investing b) create an average during volatile times of the market & c) try & achieve decent returns for all times to come without investor trying to outguess the markets.

With current equity market conditions, I strongly recommend investors to try and invest thru this strategy of STP instead of trying to time the markets. Additional return in this strategy is also partly attributable to the fact that your principal amount gets invested in Liquid Schemes (currently generating 8-9% p.a.) & slowly & steadily gets replaced with equity assets over a period of time

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:

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.

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.

Inspite of that all years have shown positive returns under the abovementioned strategy of weekly STP from April to mid February. Intention of redeeming before the Budget is that 8 out of 9 years post Budget, markets have corrected. Hence, it is more beneficial to cut your position mid February.

Inspite of an extremely volatile 2006-2007 & 2007-2008, STP on weekly basis in various equity funds have shown positive returns. We have also shown SENSEX to enable you to see the HIGHS & LOWS in respective years.Also, following table will show positive returns under the said strategy over the last 9 years as well.

Only exception to this analysis is the year of 2008-2009. Though this strategy posted marginal negative returns from April-Mid Feb under the strategy of STP, it was much lower ( -13.5 % p.a. in the case of Templeton Bluechip)  than investing one time wherein the SENSEX went hugely negative by more than 45 % p.a. over the same period. This can be explained by two factors a) Markets worldwide are in bearish mode and Indian markets have corrected by more than 60% in one year ( from a peak of 21000 to currently at 9000) & b) there is no presentation of proper Budget as this year is the year of General elections. There will be Interim Budget rather than presentation of actual Budget. Hence, the phenomenon of markets going up in anticipation of Budget presentation is lacking in the current year.

• Example below is for Templeton Bluechip without entry load & SENSEX

Only solution to the said investment through STP going negative for the current year is to hold it for some more time. As the average cost of investing would be in favour of the investor; 15-20% jump in SENSEX from current levels should take the investor in positive territory.

I personally feel that :

• One must invest some portion in equity as an asset class
• This should be done systematically as discussed above
• Must cut your position mid February if you are in positive
• Hold on to the invested amount post mid February ( if returns are negative) till such time it comes back into positive territory. This according to me should be sooner than later due to the averaging concept working in favour of the investor
• This will instil discipline for investments as well as disinvestments. Most of the investors miss out due to their greed of earning more and more returns & in the bargain neglect to disinvest at right time
• This will give steady double digit figure returns YOY instead of giving superlative returns in one year and equally high negative returns in subsequent years. On the other hand it will protect you from huge downside in situations like current year in extremely bearish equity markets