{"id":1910061,"date":"2014-02-02T18:58:43","date_gmt":"2014-02-02T13:28:43","guid":{"rendered":"http:\/\/stockviz.biz\/index.php\/?p=1910061"},"modified":"2014-02-02T18:58:43","modified_gmt":"2014-02-02T13:28:43","slug":"sip-etf","status":"publish","type":"post","link":"https:\/\/stockviz.biz\/index.php\/2014\/02\/02\/sip-etf\/","title":{"rendered":"To SIP an ETF or Not?"},"content":{"rendered":"

The two holy grails of investing: dollar cost averaging and low-cost investing<\/a> come together if you systematically invest in an index ETF<\/a>. We took a look at returns on doing an SIP on JUNIORBEES<\/a>, an ETF that tracks the Junior Nifty index, that was introduced in 2003.<\/p>\n

Summary of Returns<\/h3>\n
\n
\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n
Start Year (Jan)<\/th>\nIRR<\/th>\n<\/tr>\n<\/thead>\n
2004<\/td>\n10.77%<\/td>\n<\/tr>\n
2005<\/td>\n9.48%<\/td>\n<\/tr>\n
2006<\/td>\n8.66%<\/td>\n<\/tr>\n
2007<\/td>\n8.47%<\/td>\n<\/tr>\n
2008<\/td>\n9.81%<\/td>\n<\/tr>\n
2009<\/td>\n8.70%<\/td>\n<\/tr>\n
2010<\/td>\n4.91%<\/td>\n<\/tr>\n
2011<\/td>\n7.40%<\/td>\n<\/tr>\n
2012<\/td>\n8.58%<\/td>\n<\/tr>\n
2013<\/td>\n5.33%<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<\/div>\n<\/div>\n

The experiment<\/h3>\n

The question we set out to answer was: What would typical returns be if you systematically invested in a low-cost index ETF over different periods of time?<\/p>\n

So we assume that the investor buys Rs. 5,000 worth of JUNIORBEES at the closing price on the last day of each month. We accumulate the units, the cost basis and the P&L over different periods of time, starting at 2004 and moving forward in one-year increments.<\/p>\n

\"2004<\/a><\/p>\n

The dollar cost averaging ensures that you buy more ETF units when the index goes down and less of it when it trades higher. And by tracking the IRR<\/a>\u00a0we ensure that we normalize returns for the investment period.<\/p>\n

\"2008<\/a><\/p>\n

Conclusion<\/h3>\n

We expected nominal returns to be higher than what we observed. Between 2004 and 2014, inflation was often running in double digits. So even a 10% IRR would actually be negative real<\/em> returns. Investors probably would have made better returns if they had kept the money in a bank fixed deposit instead. So from a purely returns perspective, an SIP on an index ETF doesn’t make sense.<\/p>\n

Caveat<\/strong>: Just because the real returns were negative with this approach in the past, doesn’t mean that it will be so in the future.<\/p>\n","protected":false},"excerpt":{"rendered":"

The two holy grails of investing: dollar cost averaging and low-cost investing come together if you systematically invest in an index ETF. We took a look at returns on doing an SIP on JUNIORBEES, an ETF that tracks the Junior Nifty index, that was introduced in 2003. Summary of Returns Start Year (Jan) IRR 2004 … <\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[9],"tags":[31,960],"class_list":["post-1910061","post","type-post","status-publish","format-standard","hentry","category-your-money","tag-etf","tag-returns","entry"],"_links":{"self":[{"href":"https:\/\/stockviz.biz\/index.php\/wp-json\/wp\/v2\/posts\/1910061","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/stockviz.biz\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/stockviz.biz\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/stockviz.biz\/index.php\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/stockviz.biz\/index.php\/wp-json\/wp\/v2\/comments?post=1910061"}],"version-history":[{"count":0,"href":"https:\/\/stockviz.biz\/index.php\/wp-json\/wp\/v2\/posts\/1910061\/revisions"}],"wp:attachment":[{"href":"https:\/\/stockviz.biz\/index.php\/wp-json\/wp\/v2\/media?parent=1910061"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/stockviz.biz\/index.php\/wp-json\/wp\/v2\/categories?post=1910061"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/stockviz.biz\/index.php\/wp-json\/wp\/v2\/tags?post=1910061"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}