Not sure whether I have written about this friend of mine who does a very different type of SIP…

He started his SIPs some time in 1998-9 and is now a ‘bhakt’ of the SIP concept.

Let me explain how he went about investing. Let us say he started with a SIP of Rs. 2500 per month. He was expecting to get about 8% p.a. return. Now if he did 2500 pm at the end of the year he would have about Rs. 30,000 from his contribution. Now add 8% – it meant Rs. 32,400 (ok this is not how 8% should be added, but he believed that this is the way he wanted his money to grow). This became a routine and even in the boom boom years he would add small amounts in a few months. His real test came in 2008 – when the market plunged. He did not flinch. He kept adding right down to an index of 10,000. Even on the way up there were times when he added.

Learning: this is not a sensible learning story at all.

Here is a man who is very rich but doing a small SIP. His logic was great though. Every year he would calculate how much money he required for his goals – then say if I had Rs. 20,00,000 today and it grew at 8%p.a. I would have money for goal 1, …and so on. Then he would move some money from debt to equity.

All these methods are good…not sure what worked in the past and what will work in the future. Do not do a back testing – it is the worst thing to do for a portfolio projection (ok MBA students of mine please excuse).

Just do a simple SIP with an amount you are comfortable with for a long term …you will see the results. If the markets turn volatile your returns will look better – the down period allows nice accumulation at lower prices…this is the classic learning and it stays.

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  1. Real takeaway :
    1. Do not do a back testing – it is the worst thing to do for a portfolio projection
    2. If the markets turn volatile your returns will look better – the down period allows nice accumulation at lower prices.

  2. Unless I am mistaken, I thought this was called VIP (value Investment Planning), where you fix the returns and change the investments accordingly.

  3. VIP yes…but too many variants so i did not give it a name. VIP works on more than just the targetted return..it also works on market level…

  4. I am aware of VIP that is based on targetted returns. Can you please explain (maybe in a separate post) about how it works on market level, which I thought will automatically get reflected in the returns.

  5. Simple SIP itself would make you a VIP. Complicating a simple system like SIP is not required.

    Ofcourse we all love complex things – so there are enough SIP variants available in market.

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