Rajesh Bhardwaj knows a thing or two about losing money. In 1983, at the age of 22, Bhardwaj, a former army man was posted in Dras, in the Kargil district of Ladakh. A doctor who served in the Indian Army for 15 years, he remembers the winter that year was one of the coldest ever in that region and the temperature had touched -39 degrees Celsius. But that’s not the only reason he remembers that winter for. One of his seniors walked into the officers’ mess one evening and handed him an application form for an initial public offering (IPO) of a company called ‘United Leasing and Housing’. The senior convinced him that the company would give good returns. The IPO was priced at Rs.10 and he applied for 100 shares. His monthly income then was Rs.4,800. “After that, I never heard of that company nor saw my money,” he said, jokingly admitting that he still has the share certificate. After that initial mistake, it took 15 years for Bhardwaj’s investment plans to take shape, learning as he did from a real estate investment in the interim that wasn’t as liquid as he expected. Today, Bhardwaj is a sorted, savvy investor who regularly saves money by investing in mutual funds (MFs) through systematic investment plans (SIPs). His portfolio of 13-14 years has given 11.5-12% returns on an annual compounded basis.
Sunil Kamdar, 53, is based in Rajkot. He started investing in 2005 when equity markets had begun to rise. He didn’t have a plan as to why he wanted to invest, but he just wanted to “test the waters”. Apart from having an MF distributor to guide him, he started reading magazines and financial dailies to understand more about investing. He understood that an SIP was the ideal vehicle for the average retail investor with monthly surpluses. By the time his knowledge grew, it was 2008 and equity markets crashed on the back of a global credit crisis. “But I continued my SIPs, because by then, I had realised the importance of investing regularly. And that in falling markets, we get more units,” he said. His portfolio of eight years (lump sum plus SIP) gives an annual average return of about 10%. “If I get 12-14% returns in 20 years, I will be happy,” said Kamdar.
Two different routes: one painful, the other of curiosity. Same destination: wealth creation. Same path: SIP.
What is an SIP?
An SIP is a facility that allows you to invest in an MF scheme at periodic intervals, mostly monthly or quarterly. All fund houses offer these, on equity and debt funds.
Alternatively, you can also put a lump sum amount in a liquid or short-term debt fund and then transfer to an equity fund through a systematic transfer plan (STP).
In an SIP, you can either specify the tenure for which you want the money transfer to take place. Or, you can start a perpetual SIP; it goes on till you stop it. An STP works differently. Since your lump sum will get exhausted, you need to specify the time frame within which the money should be transferred.
When markets, and therefore, net asset values (NAVs), fall, you get more units, and vice versa.
