Magic of SMART SIPs that NO One told you - Rahul Jain

0:00 Hi friends, very very recently a lot of people have started to question SIPs whether SIPs can give you handsome returns in future or are you likely to make losses in SIP? For example, S. Narin, chief investment officer of ICA pro very very recently made a lot of headlines because he cautioned investors about SIPs and as per article by economic times what S. Narin was saying is that between 1994 and 2002 which is 8 years of time period and between 2006 and 2013 which is 7 years of time period midcap SIPs did not give any returns. So he picked up these two time intervals and talked about midcaps not giving any SIP returns. Does this mean SIPs have lost its charm? Well, let's have a look

0:46 at data more closely. So what you see on my screen is almost 24 years of SIP data in Nifty50 and there is a very very good conclusion here that if you do SIPs for a minimum of 7 years of time period and even if you go back to let's say 25 years no matter when you do your SIPs in 2005 in 2007 in 2010 as long as you're sticking to 7 years of investment in Nifty50 you are not likely to lose money as per the historical data but of course if you only do SIPs 1 year, 2 year, 3 years, there have been few periods where the SIPs have not given any returns. But so long as you do SIPs for more than 7 years of time period in Nifty50, then you are not likely to lose money. In

1:32 fact, you're likely to make good money. Therefore, as an investor, I would highly recommend you to please ignore the noise. Please ignore the clutter about stop SIPs. This is all noise. As long as you can continue doing your SIPs for a minimum of 7 to 8 years of period. In fact, if you go for 10, 15, 20 years of period, you're likely to make wealth in the long term. The second important point before I actually start this video, you need to understand is the impact of returns on your SIP. For example, if you want to build a corpus of let's say 10 crores, how much of SIPs you need to do? You need to do 50,000 rupees of per month SIP. Every year, top it up by 10%. And if these SIPs generate 13% annual returns over a 20 years of future period then you are going to

2:17 build 10 crores of corpus. Now the point here is that if you increase this 13% to let's say by 2%. Let's say let's put it to 15% what happens to your corpus it goes up to 12 cr almost 48 lakhs. So let's ignore lakhs here. Let's stick to 12 cr. So 20% almost 20% increase in your wealth by increasing your returns by 2% only. So the question is can we improve our SIP returns by 2% every single year. Again we cannot really predict the future. Nobody can give you the guarantee that your SIP returns can be improved by 2%. But that doesn't mean we should not explore ways of improving our SIP returns. So in this video I'm going to talk about three such strategies where I think there is a good chance that we can improve our SIP

3:04 returns by easily 2%. Therefore we can build 20% more wealth over a longer period of time. If you don't know me my name is Rahul Jan and I'm a full-time investor and I speak about mutual funds, stocks, ETFs, various assets on this channel. If you new to this channel, don't yet subscribe. Watch this video for a few minutes and I'm pretty sure you are going to subscribe and become a lifelong subscriber to this channel. With that, let's get this video cracking. So the first option that can potentially generate better returns for us or improve our SIP returns is something called as variable SIPs. 90% people don't even understand and are not even aware that variable SIPs do exist. So please pay attention here. The concept

3:49 is very very simple. What happens in the normal SIP? So for example, if you see here, you see Nifty is going up, coming down, going up and this is a market volatility. In normal SIP, what people do typically is that they're going to put 50,000 rupees per month. You can see the yellow bars here. Every month you put 50,000 rupees. No matter what happens to market, market may go up, down, you continue to put 50,000 rupees per month. This is called normal SIPs. And they are for those investors who do not want any complications who just want to put 50,000 rupees per month. They do not really understand the market volatility and things like they're happy to put the normal 50,000 rupees per month. The second type of SIP which is called the variable SIP is the concept is that when the market falls you increase your SIP amount and when the

4:34 market goes up you reduce your SIP amount. For example, during the COVID here market fell badly and as quick and immediately the SIPs went up from 50,000 rupees to 1 lakh rupees per month for these three months as you can see here or for these three periods here. Why? Because the market was down here the SIPs went from 50,000 to 1 lakh between 2021 and 22 when the market was giving a massive breakout and bull run. the SIPs dropped you can see in the red bars here from 50,000 rupees to 25,000 rupees per month because there market was overvalued so whenever market goes overvalued your SIP stop dropping a little bit and when the market is undervalued you start to pour more money into your SIP now this strategy is

5:21 likely to give you slightly better returns and I will show you some proofs as well in couple of the schemes where I've seen some data and traditionally it has given around 1 to 2% annual better returns than the normal SIPs. Again, these are not guaranteed returns, but we have seen in the past that there have been cases where 1 to 2% of better returns have been achieved. Now, you may say that Rahul, how do we go about investing or exploring the variable SIPs? One is that you can do it yourself. If you are an investor who understands market basics, even basics like Nifty50, look at the nifty50 P ratio. If the P ratio is going to let's say 25, right? Then market is slightly on the overvalued territory. If it comes down to let's say 21 or 20 then maybe it is you know undervalued. If it is between 22 to 23 it is fairly valued right? You can do all of that but if you

6:08 don't understand that what you can do is you can look at few mutual fund houses who provide you this option automatically. There are three mutual fund houses that I know again these are not recommendations these are not promotions nobody has paid me any money but as per my research it is KOTAC HDFC and IC proof. These three AMC's they present this option of variable SIPs. Each of these mutual fund houses call these SIPs very very different. Now let me run you through two of these examples so that I can bring it to life practically. So the first mutual fund house that I want to speak about is COC mutual fund. If you go to their website you will find for example smart SIPs. This page is live there. Please go and have a look at this. Simply meaning they are calling variable SIPs as something called as smart SIP. So if you want to

6:54 invest in any cot equity mutual funds I think go and check it out whether the smart SIP option is available or not and you will have to give them a mandate that I want to go for smart SIP then only they will allow you to have this feature of smart SIP. What happens in this case is for example if you come down let's say your SIP amount is 10,000 per month if the market valuations are neutral markets are fairly valued your SIP will be 10,000 rupees per month. If the market is overvalued, your SIP will drop to let's say 5,000 rupees. And if the valuations are cheaper, then your SIP amount will go up to 20,000 rupees per month. This 20,000 rupees per month or 5,000 rupees month, you can decide as an investor when you're filling out the smart SIP form. By the way, this smart SIP option, you will not find it using the brokers. For example, Zeroda's coin,

7:41 you won't find this option. If you want to opt for smart SIP, you will have to go to COC mutual fundhouse. I will also give you an example of SDFC as well. So you will have to reach out to the individual mutual fund houses and then they will be able to set smart SIPs for you. Now here the million-doll question is how does COC mutual fund house decides whether the market is overvalued or undervalued. So it really depends on mutual fund house to mutual fund house. For example, in case of COC mutual fund house, they have something called as COC balance advantage fund. This mutual fund is a mix of equity and debt. Typically what happens is if the markets are overvalued this fund's equity allocation comes down and when the market is undervalued their equity allocation goes up. So let's say now you're doing an SIP in COC flexi cap mutual fund for example

8:28 right and you have opted for smart SIP automatically they have a system in place that they will look at the COTC balance advantage funds equity allocation okay and if that equity allocation for example if I come down here and show you the data if that equity allocation is higher than 60% it means that market is cheap and therefore your SIP in COC flexiap mutual fund will go higher because because the market is undervalued and you can decide how much should be this SIP amount when you're filling out the smart SIP form. Likewise, if the market is neutral, which is determined by the equity allocation between 40 to 60%, if the equity allocation remains between 40 to 60%, it is neutral. Therefore, it will deduct your regular SIPs. And if the equity allocation drops below 40%, then

9:15 they think that the market is overvalued and therefore your SIP amount will come down to let's say 5,000 rupees which is 50% depending on what you have set it up. Now you may ask me that Rahul what sort of returns in the past this strategy has given when it comes to the COC mutual fund house. So I could not find a reliable data source from COC mutual fund house itself. In fact I had dropped them an email asking that can you please share some data with me. I did not get the data from them but what I did was I was doing some research and found this article on economic times where somebody has written this article about the smart SIPs and as per this article if you do smart SIPs then between 2011 and 2021 almost 10 years of data period the returns were slightly higher 1 to 1.5% annual returns they were higher and therefore it makes total

10:01 sense for us to explore this particular option and that might improve our SIP returns and as an investor you are going with open eyes. The second example I can give you with similar product is from HDFC which is called HDFC Flex SIP. And there is a big difference between HDFC Flex SIP and Cotex Smart SIP plan. Let me run you through that. So here is an example. Let's say you are doing 5,000 rupees per month SIP for 3 years 36 months. One big difference here is that no matter whether your SIP amount will go up or whether it will remain 5,000 rupees, your total investment will remain 1 lak 80,000 rupees in case of HDFC flex is entirely possible that this 1 lak 80,000 may get exhausted much earlier than the 3 years but as soon as 1 lakh 80,000 rupees is exhausted your

10:47 SIPs will automatically stop. Right? That is difference number one. Difference number two is that here 5,000 rupees per month SIP for example if you're doing they would never take anything less than 5,000 rupees per month. There is no concept of reducing your SIPs. Only time they will look at increasing your SIP is what I will now talk about. So in general they will put 5,000 rupees per month. For example, let's say you've done 3 months of SIP. So 5,000 gone in first month, second month 10,000, third month 15,000. Now when it comes to the fourth month of SIP, ideally they should take 5,000 rupees per month. But before they take this fourth SIP, what they will do is they will calculate your total value. Depending on how much of units you have, they will calculate total value for your

11:32 money. If the NAV is down because the market is down, let's say your value of the funds is only 12,339 rupees at the time of fourth installment. Now how they will calculate the fourth installment is that they will do 5,000 into four right 20,000 should have been your value by the time fourth installment is put into market but the current market value is 12,339 so they will deduct it and it will come out to be 7,661. So now they are going to take 7,661 rupees per month SIP because they know that the market is down because your total market value for your SIPs have come down because the NAV is down as the market is down. Therefore now this time they're going to take higher value. This is how HDFC flex SIP works. Again, if

12:18 you want to find out more details about this flex SIP plan, call SDFC mutual fund house and I'm sure they would be able to help you out in terms of which equity mutual funds this is applicable to and also if there are any limitations around this particular plan. But my point is that if you look at the return, so let me now come back and HDFC have actually published their results in terms of whether flex SIPs have given better returns or not. And if you look at the historical data, you are going to look at five years of period and it is going back to 1995 for example and this data is up to 2017. You will find that flex SIPs have given better value, better wealth if you look at the 5 years of SIP period. So definitely this is worth going and exploring. Again I'm not saying that this is going to definitely

13:04 give you expected returns but definitely something worth exploring in my view. So far, if you're liking this video, request you to hit the like button. Let me know in the comments a simple thank you. It motivates me to bring such content for you at zero cost. Also, if you're not yet a subscriber of my channel, request you to hit the subscribe button. It will mean a lot. With that, let's get to strategy number two. Now, second good strategy to potentially improve our SIP returns is that we consider factor investing. A lot of people understand what are the factor mutual funds. Some of you may not understand. Again this video is not about factor investing but let me know in the comments if you would like me to create more videos about factor investing but for example factors could be for example momentum value low volatility or quality there are few factors that you can consider depending on your risk appetite your investing

13:50 style etc. But in this video I'm going to take an example of momentum factor and tell you what has actually happened in momentum strategy. So here is almost 20 years of data when it comes to comparing Nifty 500 returns. So annual returns have been around 14.7% CAGR basis. But if you look at Nifty 500 momentum 50 index, it has given far superior returns. CGR is 23.9% annual returns, which is almost 8 to 10% of better yearly returns in the past. Again, I'm not saying that the future will be exactly like this, but the point is that this factor investing strategy historically have beaten plain Nifty 500 strategy. Why? mainly because in the last 20 years or so we have seen massive bull runs there have been periods of

14:37 bull runs in Indian stock market and if we continue to see few more bull run period in the next 10 to 15 years for example let's say in the next 5 years we see a massive bull run then the chances of momentum strategy outperforming the plain strategy increases very high and this is what the past data is telling us what about the SIP returns though so if you look at the SIP returns as well let's compare nifty 500 momentum 50 index and nifty 500 index. This data is as of 31st December 2024 over 10 years of data period. Again very very big difference between the two indexes. Nifty 500 has managed 16.4% annual returns while Nifty 500 momentum 50 has managed 24% returns annually which is almost 8%. However, if you look at the one-year basis, Nifty 500 has given

15:23 slightly better returns as of December 2024. In the short term, it is entirely possible that momentum strategy may not give you returns. Therefore, these strategies only outperform Nifty 500 or whichever index you are looking at only over longer period of time. Please make sure you understand this very very clearly and you're not getting into any of the factor investing for one year or 2 year or 3 year. You're going to look at only long-term three-year basis. If you see yes, Nifty 500 momentum has done much better than Nifty 500. If you look at the five-year basis, yes, it is done better. So, it has to be a longer period. I would say at least five years of period, minimum five years of period for you to see some meaningful difference in your returns is what you need to go and I would highly urge each

16:09 one of you to learn about the factor investing. If you are new to factor investing, please go and learn about it. If you don't know where to start, you can join my YouTube community. I talk about lot of assets almost on daily basis. Be it mutual funds, stocks, ETFs, gold, silver, a lot of assets I talk about as and when I see opportunities and the feedback of this community has been excellent. Simply go to my channel, find the join button and be my guest. With that, let me talk about the strategy number three. The third strategy is whenever you are picking up mutual funds for your SIPs, please make sure that you are not only looking at the last one year's returns, last two years returns, last three years of returns. Please do not look at point-to-point returns. You're not likely to make good money in SIPs

16:54 because whichever mutual fund performed last year may not perform this year. We have to look for consistency in mutual. For example, you have to look at rolling returns over 10 years time period. Here have a look at my screen. Large cap category. You will see 10 years rolling return data. Nepon India for example is number one. ICAC Pro is number two. HDFC large cap is number three. These are the for example three mutual funds that becomes your short list based on the rolling return. You're not going to abandon your existing mutual funds because some other mutual fund has given better returns this year. Please do not do that. You are likely to lose money. In fact, if you stick to the consistent performing mutual funds, then it is going to improve your returns over a longer period of time. There is a reason a mutual fund is consistently

17:39 performing. Maybe it is the mutual fund house. Maybe it is the mutual fund manager. Maybe it is the approach or the investment philosophy that mutual fund house is implementing which is giving them consistent returns over a longer period of time. Therefore, please make sure you're only picking up those mutual funds that are performing consistently on a rolling return basis. For example, if I talk about let's say midcap space here. So, let me come down here look at the midcap space and say give me the 10 years rolling return data. And if you look at this data, you will for example see let me sort it by the 10-year return. You will see Edel Wise has given better returns followed by Nepon India Cotek emerging equity and so on and so forth. You can look at these 10-year basis rolling return data. Let me now quickly talk about the small cap. So if I just do small cap here. So let me come down here and find the small cap here. Small cap here and submit here. And

18:25 let's have a look at the data for 10-year period. So 10-year basis if you see Nepon India small cap has given better rolling return data here. 21.97 followed by quant followed by HSBC access. At least shortlist your mutual funds based on the rolling return data and then look at other parameters for example mutual fund manager, mutual fund house, the philosophy, alpha of the mutual fund, beta of the mutual fund so that you pick up a mutual fund that is likely to give you improved returns because please remember 1 to 2% of better returns in SIPs can make all the difference. It can in fact give you 20% more wealth. And I hope in this video you have got at least this awareness that you have to look to improve your SIP returns. If you like this video request you to hit the like button, let

19:10 me know in the comments. Simple thank you and don't forget to subscribe to my channel. I look forward to see you in my next video. Until then, keep rocking.