Before I start my post have a look at this advertisement below.

Another clip in regards to SIP, watch for the first one minute thirty four seconds, courtesy Moneycontrol.



The idea of even SIP ‘doesn’t works’ might look silly to most of you, but I do have a very strong opinion that it really won’t work after looking at the various advertisements that discloses in the one tenth of the time, in a very complicated language that before the warning comes up, you are completely shut and ignore that warning. In my opinion it will not work if you are riding SIP on a wrong mutual fund. I am writing this blog with intention of having a healthy debate in regards to this subject.

SIP is the financial instrument that is designed to give you average returns, not extraordinary returns. Same time, it also benefits you by not giving you below average returns. A very flaw belief that retail or common investors cannot manage to get extraordinary returns had given opportunity to these wealth management businesses to attract your money on the back of SIP. Don’t forget they make money by charging you, to manage your own money and they either have little edge or no edge on your knowledge about how to invest. I had proved that on this blog over here.

I, myself started career with one of the biggest wealth management company as a fund manager and use to get fresh funds every day that I need to invest as per norms given to me. It was a great feeling of controlling millions of dollars of clients’ money with massive responsibility. In my opinion fund managers play very important role as a custodian to their clients as well as in building a nation by directing nation’s savings in the right assets.

Working for two years in the industry I started feeling as if I am compromising my working ethics. The simple reason was, even though as a fund manager when I knew that what I am buying is very expensive, I had to still buy them because I can’t hold cash as per the funds rules and regulation. It was similar situation like, I have to buy my favourite chocolate at expensive price today, and even when I know that tomorrow it will be on discount, on the same shelf.

These same feelings had given a birth to Valueoperations fund and our goal as an investment boutique is to invest your money only when we truly believe that the underlying asset is cheap, or else keep your money in the safety net of cash. This whole framework works and does not give you average but extraordinary returns in the long run.

So, before you commit your funds to SIP, the very first job for you is to choose right fund. We do not operate in India but look for the funds who really care about your returns. Value investing is against SIP, ask any value investor, because value investors are behind extraordinary returns not average returns.

The only good thing about SIP that I admire is discipline. If you can save for the SIP investment, same discipline can help you to keep aside same amount in the short fixed term fixed deposit till you see the opportunity in the equity market. This is what we practically do with our funds. You don’t have to buy stocks because you have money to invest, you buy stocks when they are cheap and you know that you will make money out of it.

Many of you might be thinking about timing the market is very hard. Even we agree and believe that no one can time the market, to enter and exit the market at right time you need a beacon of estimate intrinsic value to judge whether the stock is expensive or cheap. If you can estimate and calculate rational values of the stock, your job is done.

Picking up good quality business at right price with bright prospects will give you extraordinary returns, picking good quality business but not at right price with great prospects will give you average returns and picking up bad quality business will always give you negative results all the time.

Your feedback is welcome.

Aziz Dodhiya is the chief investment officer for the Valueoperations funds which operates in the Indian market as an FPI (Foreign Portfolio Investor). We do not offer any personal advice to buy or sell any stocks and the views that are shared by Aziz might not incline to your personal investment strategy and this is the reason we advise to take professional advice before going ahead with our views.