Melv
in Joseph, a Mumbai based financial planner shares his experience of investing Rs 1000 per month through a SIP in 1995 when his first daughter was born. He invested 2.12 lakhs in these 212 months and the fund value is 22 lakhs now!
Very often we think wealth creation is difficult. But if we follow some basic discipline, it is not that difficult. Let me quote my own example.
My first daughter was born on 8th May, 1995. She was our first child and like any other parents, we were thrilled. Soon after her birth, I started planning for her future.
Mutual fund SIPs were not popular at that time and were considered as risky investments. Bank deposits and postal deposits were considered safe for retail investors.
I selected the risky route and started a mutual fund SIP in June 1995 with One Thousand Rupees! Initially, it was a very high amount because of my low salary. I was working with a PSU at that time. In 2000, I joined private sector and since the salary increase was good, this SIP amount became quite insignificant for me. I continued the SIP.
Sensex was volatile from 2000 to 2012
During the market crash of 2000, I did get tense. I saw the Sensex crashing by 35% in February 2000 due to the dot-com bubble. That slowdown continued till September 2001, when Sensex reached around 2600 from the heights of 6150 in February, 2000. Thereafter it was a steady growth till 2004. Markets then turned volatile during the political instability. Again in 2006, due to a global crash in metal prices, markets were volatile. But Sensex reached the peak of 21000 in January, 2008.
It was the time of subprime crisis in US and the effect on India was also severe. Market crashed and reached to the low of 8160 in March 2009. But the recovery was fast and it reached 21000 again in November 2010. Then the going was not good and with many corrections and recoveries, it is around 20000 levels now.
My mutual fund SIP is 17.5 years old now.
I continued to fund my SIP because I had heard about the long term benefits of cost averaging, especially in volatile markets. Many of my friends stopped their SIPs in 2000 and again in 2008. But I managed to continue. You know the value of my SIP account now? I have invested 2.12 lakhs in these 212 months. The fund value now is around 21.71 lakh!!
Yes, that is the power of mutual fund SIP and long term investing.
I am switching Rs 10 lakh to a liquid fund now, because I may require the amount in the next few months for my daughter’s education. I am continuing my mutual fund SIP, because I am sure I can fund her marriage expenses also from this corpus.
Where was I investing all these 212 months?
My SIP is in the evergreen fund - HDFC Prudence Fund which is one of the oldest mutual funds in India, launched in February 1994. The fund is managed by the star fund manager Prashant Jain along with Rakesh Vyas. The fund has given a return of 20% from the inception. (As on 23rd Jan. 2013)
Performance
I was comparing this fund with other funds in the market. There are many funds in the market which started performing better than this fund. Though I invested in other funds, I am continuing this mutual fund SIP more from an academic interest.
What you can do for your clients?
Had I invested my money in HDFC Equity Fund, my accumulation would have been 30.58 lakh now.
The essence of mutual fund SIP lies in long term investing. Recommend a SIP in good performing equity mutual funds if your client’s have a long term financial goal. Time will prove your advice right. For short term goals, recommend SIPs in monthly income plans (MIPs), balanced funds or even debt mutual funds. Mutual funds offer a basket of products as per your client’s needs, which are also tax efficient.
The article was first published on http://www.finvin.in
The views expressed in this article are solely of the author and do not necessarily reflect the views of Cafemutual.
