Best Investment Strategy : An analysis

I was interested in a mail in my inbox this morning. The subject line read "IDFC Premier Equity Fund has doubled the investment amount over the last 7 years for an SIP Investor". That kindled my curiosity to study this fund further.

In 'olden days' there was an investment with Post office schemes called Kisan Vikas Patra (KVP), where the money you invest would double in 8 years. This was possible at a compound interest rate of 9%. And it was an one shot investment. But now KVP has been stopped. Many investors would thing that it is the end of the tunnel and gone are the days of money doubling schemes.

But here it is an Systematic Investment Plan ( just like an RD) which has doubled the investment. For this fund to double in value over 7 years means .... I made a small calculation. Along with that I tried to test VIP and STEP strategy. The results are summarized below:

This table shows some interesting facts:

• First and foremost : The fund has performed far better than the actual index. Hats off to the Fund Manager and Team.
• An SIP on the fund delivered 18%+ return Vs 6.5% by the index. That is a clear outperformance.
• And our VIP Investment Strategy scores far better than theSIP :
• By investing Rs.8,30,000, the SIP grew to 16,85,261, resulting in a profit of Rs.8,55,262.
• But in VIP, an investment of just Rs.4,43,083 grew to Rs.13,17,280 : resulting in a net profit of Rs.8,74,000 ( higher than SIP's profit).
• VIP grew at 27.84% compounded annually
• SIP's grew at 18.84% CAGR.
• Our Latest Investment strategy : STEP : grew by 23.16%.
• One facinating fact is :
• Investing lesser amount
• for same duration,
• in same fund
• - yields more returns
• - IF we adopt to superior investment strategies.
• STEP is primarily an investment strategy to accumulate and block higher capital on profitable investments.
• VIP is aimed at maximizing the investment returns and not deploying higher capital.
• SIP is simply a disciplined approach to investments. It works  just like an RD. It is the easiest among the three to operate.
• One major contracting feature is : the returns out of investing in Index is meager for SIP/VIP/STEP. This is the actual return the market would deliver. The excess return you get out of the fund is because of quality fund managers and their ability to pick right stock.
• Going by global standards, till such time India is a developing economy you may get such outperformance in actively managed funds. But once economy gets matured, you need to expect only the returns of an index - In this case - anywhere between 6% to 8%.
• We expect the fast pace of growth in Indian economy to remain till Year 2018-2020 or so. After 2020, Investors needs to understand and and be prepared to brace for single digit returns.
• Hence time is short. We are in December 2012. Make use of the remaining time to invest in Indian markets and maximize your returns by adopting suitable investment strategy like SIP/VIP/STEP.

For clarifications or assistance in understanding the above mentioned concepts, feel free to email us at : easyinvest@gmail.com or call us. We would be glad to explain the same in greater details.

Investors need to note that the returns out of equity market are subject to market conditions and past performance may or may not be repeated in the future. Investors need to read the scheme information document of respective mutual funds before investing. All we are advocating is that with suitable investment strategy, you can minimize risk and maximize the returns - just like the way it is illustrated above.