Case Study – Combining HDFC Top 200 & Recurring Deposit – Part 3

This is the third part of the SIP related Case Study where I compared the performance of following 2 scenarios:

Scenario 1: Investing regularly (Rs 5000) & periodically making lumpsum investments when markets are down. This lumpsum amount would be an accumulation of an additional amount of Rs 5000 every month (+ annual interest@8%), which will be used at one-go when markets are down (at a pre-decided trigger point).

Scenario 2: Investing regularly, double the regular amount (Rs 10,000) over a period of 20 years in a decent, well diversified mutual fund.

The part 2 of the case study was more about reader’s reactions… where many of my assumptions were questioned. And I was glad that readers were very vocal about it as it pushed me to do further analysis. If you haven’t read the feedbacks, I recommend you do it right away here.

In this part (3) of the study, I test a few other scenarios.

Please note that I initially started this study to prove that there ‘should be’ a structured solution, which could make use of following two facts – (1) It doesn’t make sense to stay out of markets at any time – Why? (2) It seems more logical to invest ‘more’ when markets are down.

But as I progressed with my analysis, it started becoming clear that it might be better to stick with simple SIP of mutual funds rather than thinking too much about investing more using a market crash fund. I am using the word ‘might’ as its still possible that people might be using a similar approach and making profitable investments when markets go down. 

But for average investors, it might be a sensible to stick with SIPs.

But nevertheless, I will complete what I started….

Re-Analyzing To Include Interest Component of RD (Market Crash Fund – MCF)

In first scenario, the total money outgo is Rs 21.9 Lacs. Of this, Rs 10.95 lac is invested as SIP of Rs 5000 every month whereas rest is invested in lumpsum at regular intervals as and when a trigger point is reached. The interest on RD has been considered @ 8% per annum and has been calculated and added to MCF after completion of 12 months. Wherever trigger point is reached in less than 12 months, interest has been ignored for that 12 month period.

There is no change in second scenario and the entire Rs 21.9 lac is invested as SIP of Rs 10,000 every month.

After inclusion of interest component, there was expectation that second scenario would be trumped by first one. But still the second scenario seems to have an edge. And this time, the MF+RD combination delivers Rs 2.23 crores whereas a simple MF delivers Rs 2.43 Crores. (without interests, the SIP+RD number was Rs 2.14 Cr)

Trying Out 75%-25% Split for SIP+RD Scenario

A reader had suggested that I should also try out a scenario where SIP+RD combination is more skewed towards SIP. So I tested a scenario with 75%-25% SIP+RD combination. But here also, there were no earth-shattering differences in results. A SIP+RD of 75%-25% resulted in a corpus of Rs 2.33 Cr, which falls short of Rs 2.43 Cr of simple 100% SIP.


I think a lot of effort has already gone in analyzing these scenarios 🙂 But I will like to try out one more scenario. And that is of changing the trigger point to one which is dependent on P/E Ratio of broader markets rather than fund NAV. I will be analyzing this scenario in 4th and last part of this case study. My tentative scenario for evaluation is as follows:

MCF Trigger points will be at 15PE. At this point, money accumulated will be split into 6 parts and deployed over next 6 months (if PE remains less than 18). For pausing investments in regular SIP when 22PE is achieved, the money which was supposed to flow into SIP will be added to MCF. Once markets go down below 22PE, regular SIP will commence. But trigger point for MCF deployment will remain at 15PE.

Let me know if this scenario sounds fine to you all….or if something more needs to be added here.

PS – I know I am complicating things. But lets just finish what we started. 🙂


  1. Hi Dev, thanks for replying n sorry that my comment was not very relevant to the post. My doubt is that, at most of the places it is suggested to have limited no. of funds in a portfolio as more no. of funds cause overlap of same stocks. But how can this overlap reduce my return? Assuming I am able to periodically monitor my portfolio. Especially in case of mid cap category instead of 1 or 2 funds can i put money in 4-5 funds of good 5 years track record?

  2. It has become slightly complex. But I like these analysis. And I think the PE related analysis will be one to watch out for. My guess is that it will beat the pure SIP. What say?

  3. Overlapping of funds in itself does not reduce the returns. It is rather reduction in average returns because of holding good as well as mediocre funds that reduces the returns.

    As far as periodically monitoring is concerned, its right to do it…but making frequent changes in fund portfolio (due to this monitoring) will result in increase in transactional costs which reduce the returns.

    But there is absolutely nothing wrong in having 4-5 funds within a market-cap category. Its only that 1-3 funds under most circumstances will produce similar results and will be more convenient to manage.

  4. Hi Sanjana
    I can only say anything when I am done with the analysis 🙂
    But even if it beats the pure SIP, it might be because of a lot of factors like chosen fund, trigger points, etc

  5. Hi Dev,

    At the trigger point of 15PE you should invest the entire accumulated rd amount and continue to invest the additional fund in MF till the pe crosses say 16 wherein again the funds can be diverted to rd. pe of 22 to stop sip seems reasonable. still my expectation is simple Sip to work better. Let's wait for the result.


  6. Seems simpler and more implementable than what I proposed.
    But in case markets move lower (PE<15), a major chunk of MCF would already have been deployed in one-time deployment and there wont be much fund left to use at lower levels (apart from regular SIPs)

  7. Dev, actually a very good initiative but then why not to choose dynamic funds where in fund is moved when based on movements of P/E ? can we compare result of outcome with any of dynamic fund which is there in market for 10 plus years ?

    This will help us to take decision if we should invest in regular SIP/ MCF-PE approach/Dynamic fund ?

    My thought is keep is simple to invest irrespective of P/E to take advantage of compounding and i believe compounding works even in funds.


  8. Hi Dev,

    I just have 2 comments, at the cost of sounding like broken record-;)

    1. If the data is available, could we take the funds PE ratio instead of Index PE as trigger point?
    I understand it would be a bit involved, but at the same time, i believe it does more accurately reflect what we are trying to actually accomplish here.

    2. At he end of it, could you add the outcome of doing same SIP in balanced fund (say HDFC Prudence) – e.g. as per VR SIP returns site

    it turns out that a 10,000/- SIP from Oct 1, 1996 to Dec 1, 2014 – the total of Rs 21.9 lac would have turned to Rs 2.65 Cr at 23.63% pa!. And in which case, it might just be better to do a SIP in a good balanced fund!!

    What do you say?


  9. if MKT drift lower additional fund apart from regular sip will also go to MF. But if we start a sip when pe touch 15 we could lose out on opportunity if the market say picks up in one or two months. Generally market doesn't stay below 15 for a long period like 6 months.

  10. Dynamic fund came to existence since 2004. I.e. franklin dynamic pe ratio. Even here the rules are different from wat is being analysed. In dynamic 100% equity only when pe goes below which may or may not happen.

  11. Dev, my few cents. The average PE of Indian market – 30 year trend is between 14-17. A market crash per-say is something like <12 or even falling below 10. Crash should happen not more than a few times in a 10 year period.


  12. Agree with you completely about keeping it as simple as possible. Its just that I wanted to test the hypothesis that I am going forward with it.
    For average investors, it makes sense to continue regular SIPs irrespective of market conditions. And if possible and if surplus funds are available during market corrections, one should invest in lump sum at that time.

  13. Hi Anand

    1) The fund level PE data is not available. (Daily or monthly)

    2) Even in the exercise I did, it seems that sticking to a simple SIP (whether HDFC Top 200 or a balanced fund like Prudence) earns more returns than the other scenario. Though its tough to repeat the entire analysis with HDFC Prudence now, I believe that it makes sense to stick with simple SIPs and probably use Market Crash Fund for picking individual stocks if one can do it efficiently and profitably.

  14. I guess my scenario would work out well if markets stay depressed for more than 6 months (even after reaching PE15). But in your strategy, more and more fund would be deployed in MF even if the pessimism starts evaporating even before 6 months.

    What if after reaching PE15, accumulated fund is deployed over next 2-3 months instead of 6 and, money supposed to go into RD starts getting into SIP till PE16 or PE17 is breached?

  15. Yes, continuing with regular SIPs and using the MCF for individual stock picking seems to be the way..

    Btw, while a bit off topic (but in spirit of this study) – 2 questions on balanced funds:

    1. How often do the balance funds actually balance?
    The closest data, i could get was from the morningstar site, where they have
    the equity and debt ratio's for last 4 quarters or so (but then it really does
    not reflect what was ‘actually’ done i.e., e.g what percentage of equity was
    sold and how much debt bought and vice-versa)..

    2. For an individual investor, as there is no tax on the debt portion of
    balanced funds, what is the tax treatment at the fund house level for the debt
    part (in other words, how much tax (for the debt portion) does an individual
    investor in a balanced fund end up paying).


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