Saturday, May 29, 2021

Smart Investment Solution

Buy and hold vs. smart investment solution

The same equity scheme thru smart invest has genereated 16% return

(based on back testing)

What is smart investment solution?

At certian extreem valuations (red zone) based on valuation trigger, funds will move from pure equity to dynamic equity/ liquid funds,

& at exteem low valuations (green zone), funds move from dynamic/liquid to pure equity funds

this cycle continues and protects downside at the same time participate in the upside

During the 5 year period the sensex delivered negative returns (see graph below), 

Rs 10,000 SIP for 5 years of 6 lakhs delivered 0.42% in a popular equity mutual fund

But the smart exit strategy of ensures you would have got 12% CAGR in the same mutual fund by exiting when markets were expensive and by re-entring at a lower level

This was the year when market corrected -60%, the exit strategy helped us create 12%

October 2007, the smart solution triggered an exit form pure equity owing to high valuations, but advised continuing the SIP in Debt fund, in march 2009 when market became cheap, the funds moved form debt to pure equity

(based on back testing)

Protecing the downside

Investing & dis-investing in the right asset class at the right time is the secret ingredient of the smart exit strategy

Green zone - if investors had invested in Nifty and held it for 5 years there after, you would have made average of 26%;

Yello zone - the average came down to 15% ;

Red Zone - Average return came down to 7.5% ;

80% of investors invest in Red zone (due to biases such as FOMO, Herd mentality etc.) only 1% invest in green zone smart investment solution automates this process thru pre-defined triggers so as to not fall for biases (greed and fear) which is the single most important reason preventing investing success

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