One SIP at a time
Sridhar Iyengar, a 40-year old B-school teacher in Mysore, turned a deaf ear when experts suggested that he keep away from products that had anything to do with stock markets. Iyengar went ahead and subscribed to two monthly systematic investment plans (SIPs) of Rs 4,500 each with HDFC Tax Saver and SBI Tax Gain schemes in September 2008, when the likes of Lehman Brothers were folding up and the stock markets were going into a tailspin.
Despite the crisis, Iyengar continued investing diligently even while his funds were showing negative returns. His confidence paid off as the markets turned around, and Iyengar soon turned in a profit as his schemes delivered high double digit returns. “There were occasions I had lost one third of my investments, but did not back off from payments as I knew it would take some time to make some decent returns,” says Iyengar.
Unlike Iyengar many investors stopped their SIPs mid-way last year because of the falling markets. Sure enough, it gets difficult to sustain an investment when you see your net asset values tumble by 50-60 per cent. But that’s precisely what experts recommend that you don’t do. “When an investor signs up for an SIP, he must have a timeline of 3-5 years in mind. It’s only then that monthly investments get the advantage of both the strength and weakness in stock prices,” says Srikala Bhashyam, partner with RS Consultants, a Bangalore-based investment advisory firm.
“As you can see, those who continued with their investments last because your regular payment buys more mutual fund units when the stock markets are down and less units when the markets are up. Although most investors start with a long-term horizon of three to five years, they tend to stop their SIPs when the markets go bust.
"This panic reaction results in investors losing out the best times in the market when they can accumulate more units with the same cash investment. Says Anil Kumar, CEO of Birla Sun Life Mutual Fund: “One should stay invested all throughout the SIP. The power of SIP is the power of compounding. One must keep on putting money and the power of compounding builds up.”
Some investors who stopped their SIPs tend to re-start the same when the markets look up again. This means that they get far lower units with the same investment than the investor who sticks with his SIP through thick and thin. Says Bhashyam: “Investors need to show consistency in their investment patterns if they want real returns from an SIP. They must remember there’s no short-cut to wealth creation.”
Experts caution that long-term commitment and patience are needed to build a sizable corpus. “Even a 12 per cent return on an annualised basis over 10-20 years will help you build a large corpus,” says Bhashyam. In fact, whenever the next dip arises, consider increasing your SIP payments so you can accumulate more units. As savvy investors have learnt, rebounds can happen swiftly without prior signals.
