Case Study Combining HDFC Top 200 & Recurring Deposit

Part 3
stableinvestor.com/2015/01/hdfc-top-200-sip-investment-case-study-3.html

Dev Ashish

18/1/2015

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 readers 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 havent 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 doesnt 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)

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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.
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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.

Related
Case Study - Surprising Results of combining HDFC Top 200 &
Recurring Deposit (Market Crash Fund)
In "buy low sell high"

Case Study - Combining HDFC Top 200 & Recurring Deposit

Part 4
In "buy low sell high"

Case Study - Combining HDFC Top 200 & Recurring Deposit

Part 2 (Readers Reactions)
The Case Study post where I tested the following scenario (hypothesis)
generated quite a lot of discussion.Investing regularly (Rs X) & periodically
making lumpsum investments* when markets are down, will fetch higher returns than regularly investing double the
regular amount (Rs 2X) over a period of 10-15 years in a
In "buy low sell high"

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