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SIP on Steroids – How to give boost to your regular investments?

(Latest Update) – You can read an updated and more detailed analysis of the PE and other ratios here.

We decided to use this insight to boost our SIPs.

For our analysis, we started with SIP of Rs 5000 every month, from January 2000 and kept on investing till December 2011. A total of Rs 7.25 Lac was invested in 145 instalments. Now we add the Boost. Whenever markets PE fell below 15, an additional Rs 5000 was invested in that month i.e. a total of Rs 10,000 was invested in that particular month. This happened in 23 of the 145 months and an extra Rs 1.15 Lac boosted the normal investment of Rs 7.25 Lac. This took total investment to Rs 8.40 Lac.

So what is the current value of the investment? Did the boost help in earning higher returns? Read further. The investment of Rs 8.40 Lac stands at a Rs 23.8 Lac. And if SIP was not boosted by Rs 1.15 Lac, it would have stood at Rs 19 Lac.

In an earlier post about timing the markets, we saw that it doesn’t make sense in trying to time the markets. If earning a better-than-average return is the aim, it is enough to invest regularly in a disciplined manner rather than trying to time the markets.

Let’s suppose that you as have decided to invest at regular intervals. This type of investment can easily be executed by means of SIP or Systematic Investment Plans.

Systematic Investment Plan (SIP) allows investment in markets at regular intervals. A normal SIP invests once every month.
There are many online SIP Calculators available that can be used to calculate SIP amounts based on your financial goals.
 
SIP is fine…But how to put them on steroids?
Before we answer this question, we would quote an analysis from our previous post on Analysis of P/E Ratios of Indian Equity Markets. Our study suggested that whenever an investment is made with markets trading at a multiple of less than 15 (PE<15), returns over 3 and 5 years have been phenomenal.

Above data shows that on increasing our investment by 15.9% (Investing more when market is trading at lower valuations), our overall investment value increases by 25%.

So to summarize,

  • But even after discussing the benefits of regular investments in markets & redundancy trying to time the markets, if you want to time the markets by investing in direct stocks, you should stick to shares of large & stable companies (Read about how to find Large Caps selling at massive Discounts!)
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Written by Dev Ashish

Founder - Stable Investor Investing | Personal Finance | Financial Planning | Common Sense

4 comments

  1. Great article. Wish this post was done few weeks back when the PE was below 15 :-). It's still not too late I guess.
    Thanks for introducing the handy calculator.

  2. Sir I invested a big amount in single plan now i understood SIP Income Yielding Techniques. I am going to separate the amount and invest in mutual fund thanks for the information…..

  3. Mr.Dev, Here PE means which PE which have to consider NSE/BSE. I checked
    in the exchange websites PE of NSE and BSE are different.
    Please clarify

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