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A Superior Investing Process - Do a DIP SIP

Punit Jain | 07 Mar, 2016  | Follow Author | Add to my Favourites 
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Did you know that the DIP SIP is the most efficient way to invest in the stock market?

We at JainMatrix Investments recommend investors to invest in equities in a Direct Equity – DIP SIP mode. The equity markets have fallen sharply this year, and this is a good time to invest. Let us explain this process.

What is a SIP?

A Systematic Investment Plan or SIP is a smart mode for investing money which allows you to invest a certain pre-determined amount at regular intervals (weekly, monthly, quarterly, etc.). A SIP is a planned approach towards investments where the saving habit becomes a routine. The SIP approach can be used for any investment vehicle, such as FDs, MFs, direct equity, etc.

Why Equity investments?

Historically investments in equity stocks have given higher returns amongst all the other asset classes if investment was done with discipline and a long term time horizon. See anassets map where we present a number of asset classes and the Risk-Return trade off, Fig 1.

What are the benefits of a direct equity SIP?

1. Ride the Volatile Equity class and reduce Risk with Rupee Cost Averaging

2. SIP can be started with very small amount of money, and increased at a later date

3. Timing the market is not necessary. But gains are best when markets are low.

4. Long term financial goals can be aligned with SIP

5. Disciplined approach towards Investment helps in controlling the emotions

6. Investments get aligned with income flow and it becomes a regular habit

The JainMatrix Investments Model Portfolios

JainMatrix Investments launched its Large Cap Model Portfolio inDec 2012 and its Mid & Small Cap Model Portfolio in Feb 2013. These two portfolios are chosen from over a 100 stocks that we have researched over the years. The main reason for two separate model portfolios is to offer simple investment choices, and to align with the risk appetite of investors.

- The large cap portfolio consists of 7 stock picks from 7 different sectors. The firm chosen is identified as a high potential large cap with good fundamentals. The minimum investment period is 2 years. The objective is to outperform Sensex/ Nifty by 5-10%.

- The 7 stock picks from the Mid & Small Cap Model Portfolio are from 3-4 high potential sectors. These firms have very good growth potential irrespective of mid, small or micro size. The minimum investment period is 1 year. The objective is massive out-performance of Mid/Small cap Indices.

DIP SIP and Equity MF SIP Compared

Now that you have understood the equity SIP mode of investment, it is imperative to compare DIP SIP – investing directly in equity with equity Mutual Funds.

1. Expense Ratios

Investments in equity Mutual Funds are expensive in terms of the expense ratio cost incurred to the investor. Expense ratio states how much you pay a MF in percentage term every year to manage your money. This includes the fund management fee, agent commissions, registrar fees, and selling and promoting expenses. The Expense Ratio that is disclosed every March and September as a percentage of the funds net assets. As you grow your investment portfolio over the long-term, a high expense ratio will eat into your returns through power of compounding. The expense ratio of debt MF’s is typically in the range of 0-1% whereas it is in the range of 1-3% for equity MF’s. See Fig 2.

In comparison to this, the JainMatrix Investment Service has a fixed/ flat annual charge.

2. Performance


Now let’s have a look at various index returns, top performing large, mid & small cap MF’s and the performance of JainMatrix Investments model portfolios.

Top 10 Large Cap MFs over last 3 years

The best performing large cap MF over a 3 year period is Birla Sun Life Frontlife Equity Fund which has given investors a 13.7% simple annual returns. In the same period the SENSEX has given investors a simple annual return of 7.27% and JainMatrix Investments Large Cap Model Portfolio has given a simple annual return of 13.3%. Let us understand this graphically in Fig 4.

Top 5 Mid Cap and Small Cap MFs over last 3 years

- The best performing Mid-Cap MF over a 3 year period is UTI Mid Cap Fund with a 28.08% simple annual returns. In this period, the S&P BSE Mid-Cap gave returns of 17.14%.

- The best performing Small-Cap MF over a 3 year period SBI Small & Midcap Fund gave 33.23% simple annual returns. In this period the S&P BSE Small Cap gave a return of 18.22%

- The JainMatrix Mid & Small Cap portfolio gave a simple annual return of 47%. See Fig 6.

3. Control

Investors in MFs hand over the investment performance to the portfolio management team of the MF. They can now decide only to buy, hold or exit. However in the case of the JM Model Portfolios, investors retain control over the purchases as the investments are in their own trading/ demat accounts. This offers additional flexibility to investors for both entry and exits.

4. Liquidity

Liquidity is the investors ability to encash in the case of urgent need for money. MF’s can be closed ended MFs that will be locked in until maturity thereby removing chances of liquidity during the investment term. Thus if an investor wants the money immediately, then he/she would have to pay an exit load for the same which is again 1-3% of the invested amount. ELSS MFs are locked in for 3 years. Direct equity is very liquid as within 2-3 days the stock can be sold and the cash credited into the linked bank account. However from a tax perspective, the treatment is the same for direct equity and equity MFs. Long term capital gains kick in after 1 year of investing.


How to execute a direct market SIP?

1. Checklist for a DIP SIP:

- You can use your current Online Trading account/ broker relationship for the DIP SIP. If you have to choose among your broker options, choose the one with lower brokerage or better ease of use.

- Decide on the 5-7 stocks you will invest in.

- Decide on the amount you will invest every month – here I would suggest you fix an amount in the range of Rs 5,000 to 50,000 and keep up this amount every month. Thumb rules here can be 10% of your take home salary or 50% of monthly savings.

- Create a small calculation excel for helping you decide the actual number of shares to be bought. See section – Start Investing.

- Decide a date for investing. If you are salaried, perhaps 2nd or 3rd every month is a good date as it is right after you have received your salary. Or any other convenient date. Keep a reminder for this.

2. Choose Your Stocks

This is an important first step. My key principles in choosing the stocks are:

- For a high stability low risk portfolio, choose large liquid blue chips.  They should be Nifty/ Sensex stocks. You do not want too much volatility in your mutual fund.

- For an aggressive higher risk portfolio, choose mid & small cap stocks with high potential.

Subscribe toJainMatrix Investments Investment Service to receive proven, high performing Model Portfolios

3. Start Investing

- You are now on the day you are starting your DIP SIP, within trading hours.

- Choose your DIP SIP portfolio of stocks. Lets say you chose the top 5 shares by mkt cap.

- Lets say you have chosen the amount Rs. 30,000 to be invested every month for your DIP SIP.

- Create a small excel – which can help you calculate the number of shares right now. See fig 7.

- Open the excel, do the calculation; then buy the DIP SIP through your broking account.

- Your DIP SIP can be done in 10 minutes every month.

Start your DIP SIP today. Subscribe to the JainMatrix – Investment Service to get our top performing Model Portfolios and recommendations and you are ready to go.

Click here to subscribe - LINK

Contact us on – LINK   

Happy Investing!!!!!


About Punit Jain

The author is a SEBI-registed Research Analyst (SEBI Registration No. INH200002747), and has a firm called JainMatrix Investments ( which offers an Investment Advisory Service. He can be contacted at [email protected]

For more information please write in to [email protected]

Disclaimer: The author has taken due care and caution to compile and analyse the data. The opinions expressed above are only the views of the author, and not a recommendation to buy or sell. Neither the author nor accept any liability whatsoever arising from the use of any of the above contents.

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