The document discusses the advantages of incorporating a systematic investment plan (SIP) in debt funds alongside equity investments for portfolio stability. Back-testing from April 2008 to March 2013 suggests that systematic investments in debt can reduce overall portfolio volatility during times of market uncertainty. The analysis emphasizes that combining debt and equity investments can offer better risk-adjusted returns compared to an equity-only strategy.

1. SIP works for debt too
An SIP into an equity fund is much advocated. Have you ever thought of doing one into a debt fund?
It would add to the overall stability of your portfolio.
Author : iFast Content Team
While systematic investing in equity has been much touted, the same attention has not been
given to investing in debt funds. Franklin Templeton Mutual Fund recently came out with a note
on this very topic. Emphasizing the need to have a diversified portfolio, it talks about how
investing systematically in debt during volatile equity markets has a positive impact on an
investor’s portfolio.
Data was analysed over the period from April 2008 to March 2013 where debt performance was
represented by the Crisil Composite Bond Fund Index and equity by the Sensex. Using back
testing data, the tables illustrate how a systematic investment plan (SIP) in debt gives a
portfolio stability over time, as against a pure equity portfolio. And, an SIP in debt coupled with
an SIP to equity can result in reducing portfolio volatility, on an aggregate basis, compared to an
SIP restricted only to equity.
Though a point must be made that for the period under consideration (April 2008 to March
2013), the equity market has been relatively flat or negative while the debt market has moved
favorably.
Performance over 1 year
Debt: Equity portfolio
allocation
SIP debt
returns
SIP equity
returns
Combined portfolio SIP
returns
100:0 9.11 8.06 9.11
90:10 9.11 8.06 9.01
80:20 9.11 8.06 8.90
75:25 9.11 8.06 8.85
0:100 9.11 8.06 8.06
Performance over 2 years
Debt: Equity portfolio
allocation
SIP debt
returns
SIP equity
returns
Combined portfolio SIP
returns
100:0 9.01 5.57 9.01
90:10 9.01 5.57 8.67
80:20 9.01 5.57 8.32
75:25 9.01 5.57 8.15
0:100 9.01 5.57 5.57

2. Performance over 3 years
Debt: Equity portfolio
allocation
SIP debt
returns
SIP equity
returns
Combined portfolio SIP
returns
100:0 8.29 2.87 8.29
90:10 8.29 2.87 7.75
80:20 8.29 2.87 7.21
75:25 8.29 2.87 6.94
0:100 8.29 2.87 2.87
Performance over 5 years
Debt: Equity portfolio
allocation
SIP debt
returns
SIP equity
returns
Combined portfolio SIP
returns
100:0 7.49 7.16 7.49
90:10 7.49 7.16 7.46
80:20 7.49 7.16 7.42
75:25 7.49 7.16 7.41
0:100 7.49 7.16 7.16
 All the above figures are %
 All returns computed with SIP starting on the first of each month
1-year period: April 2012 – March 2013
2-year period: April 2011 – March 2013
3-year period: April 2010 – March 2013
5-year period: April 2008 – March 2013
 Valuation of the portfolio is as on March 28, 2013 with all returns greater than 1 year
compounded and annualised
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