Can buying Quality Shares regularly be more rewarding than Mutual Fund SIP's ?

Can buying Quality Shares regularly be more rewarding than Mutual Fund SIP's ? 

SIP, or Systematic Investment Plan in a mutual fund is done irrespective of where the stock markets are headed (Up or Down). As a result, over the long term, your investment cost averages downward.

SIP investing can be done in direct equity shares too. The concept remains the same as SIP in mutual funds. However, SIP in Equity offers the following benefits.

Advantages of Equity SIP's
More control over your portfolio in terms of stock selection, purchase cost, exit price, percentage of each stock in the overall portfolio, sector allocation, etc.

1. Possible to change allocation across stocks and sectors at any time depending on market movement & your preferences. 
2. You can continue to hold winners & exit losers.
3. You receive dividends directly from companies whose stocks you own.
4. You can avoid over-diversification, which some mutual funds tend to do.
5. You don’t have to pay management fee that is levied by mutual funds.
6. You enjoy high liquidity; you can sell stocks at any time if you need cash.

You are convinced of the merits, but have a concern. Do you have the skills or the time to select & monitor individual stocks. How would he overcome this? On digging deeper, please find the concepts of ‘Buy what you see’ & ‘Quality’ investing.
‘Buy what you see’ is a simple concept. It implies that you invest in stocks of companies whose products you use & see a lot of other people using.

Quality Investing :
‘Quality investing’ implies investing in fundamentally strong companies that meet the following 10 parameters.

1. Market capitalization of over ₹ 1,000 Crore (Market Capitalization = Number of shares outstanding multiplied by market price per share).
2. The company should have been in existence for at least 10 years.
3. The company should have delivered Revenue/Sales growth of at least 10 per cent & Return on Capital Employed (ROCE) of at least 14 per cent consistently over the last 10 years. 
4. Competent & visionary management, the company should be a frontrunner to adopting new technologies to make its business more efficient & improve its offerings to its customers. 
5. Part of sector that is on the threshold of sustained exponential growth.
6. The company should successfully move through these value migration stages while maintaining its leadership. For instance, with respect to commuting, moving from cycles to cars & now, to driverless cars.
7. Should be a ‘Quality’ Company in the B2C (Business to Consumer) market segment, which facilitates building brands, customer loyalty, expanding across geographies & products, etc. thereby increasing the company’s equity valuations.
8. Look for quality companies you are familiar with based on brands, quality, service, loyalty, etc. A product or service that you use & like.
9. Quality companies usually offer products across the price spectrum, thereby increasing their consumer base. For instance, a Company manufacturing brown goods (refrigerators, air conditioners, etc.) can offer products at different price points. 
10. It’s best to avoid PSU stocks & Cyclical Companies in sectors such as Infrastructure & capital goods.

Searching for Examples : Lets decide & look for an example.
Look at the tube of toothpaste lying on the bathroom counter. Read the label ‘Colgate’. Think about the company manufacturing this toothpaste & realize that most people you know used Colgate toothpaste just like you. Then go & seek information about the stock Colgate Palmolive (India). The details of the search & study throws the following:

• The company’s market capitalization (Number of shares multiplied by the market price per share) was nearly Rs.40,000 crore.
• The company belonged to the personal care/FMCG sector. It has been in existence for more than a hundred years.
• The Company is run by credible & competent management & it has had strong financials over the last 10 years. Consistently high Return on capital employed (ROCE) of above 14%, sustainably high Profit Margins of over 10%, healthy free cash flow (FCF), strong balance sheet, Zero debt, etc.
• The company’s business was non-cyclical, i.e. it was not significantly impacted by economic cycles & it was a market leader in the mouth wash/care market. 
• The company is constantly innovating by introducing different kinds of toothpastes.
• The company is also a leader in the toothbrush and mouthwash segments offering innovative products - 360 degree Charcoal Gold, 360 degree Whole Mouth Clean, 360 degree Visible White & 360 degree Floss-Tip, Colgate ZigZag Black Toothbrush, etc.
• The company enjoys customer loyalty. It has an extensive distribution network & is strongly recommended by dentists. In fact, ‘Colgate’ satisfied all the parameters of a ‘quality’ stock.

Using the SIP investment strategy in ‘Buy what you see’/quality companies such as Colgate has the potential to generate consistent & robust returns over the long term, with low risk.

You would also discover that over the past 10 years, while multi-cap funds have generated CAGR returns in the range of 7 to 12.5%, a ‘Quality’ Portfolio has generated CAGR returns of about 19% (Excluding dividends & Bonus Issues, etc.). Against this, the Nifty 500 Index (Which constitutes most stocks that form part of multi-cap funds’ portfolios & ‘Quality’ portfolio) has generated CAGR returns of about 10%.

Decide to build a portfolio through SIP investing in 10-12 such quality stocks with allocation of not more than 10% of the portfolio in each stock. This way you are on your way to build you personal wealth.