Is it the time to “STOP” or “TOP UP” your SIP?

As the saying goes, “Rome was not built in a day”. Same way, there is no shortcut to Wealth Creation.
It reminds us of an investor Ramesh, who started his investment journey in April 2005 through his Financial advisor Mr. Ravi. Ramesh took his first step with a monthly SIP of 5,000 into Reliance Multi Cap Fund with a view to create wealth. By the end of 2006, he saw his money grow significantly to Rs. 1.60 lakhs over an investment of Rs. 1.05 lakhs.

Based on his recent experience, he decided to start his 2nd SIP of Rs. 5,000 in Reliance Multi Cap Fund in Jan 2007. His value of investments grew for the first 22 months but suddenly the markets corrected sharply as a fallout of Global financial crisis and his portfolio value declined to Rs. 2.30 lakhs over an investment of Rs. 3.25 lakhs. He got worried and was thinking of redeeming his investments as his portfolio value declined substantially. However, his investment advisor Mr. Ravi advised him to continue with his regular investments. He convinced him that SIP is a long-term wealth creation tool and each market correction is rather a good opportunity to further bring down the cost of investments by averaging through buying more units during such times. As guided by Mr. Ravi, Ramesh continued his SIPs without getting worried by the short-term volatility. This helped him grow his wealth systematically over a period of time.

In Jan 2011, when the markets started declining from their peak, Ramesh recalled Mr. Ravi’s advice and took this as another opportunity to start his 3rd SIP. He invested another Rs. 5,000 per month in Reliance Multi Cap Fund with a long-term perspective having learnt from his past experiences.

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By Dec 2018, Ramesh’s:

  • 1st SIP of Rs. 8.25 lakhs grew over 3 times to Rs. 25.93 lakhs.
  • 2nd SIP of Rs. 7.20 lakhs grew over 2.5 times to Rs. 18.83 lakhs.
  • 3rd SIP of Rs. 4.80 lakhs grew over 1.7 times to Rs. 8.50 lakhs.

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Mr. Ravi’s advice thus helped Ramesh to cumulatively earn a CAGR of over 15% p.a. through his three SIPs and see his corpus grow to Rs. 53 Lakhs.
Mr. Ravi now sincerely advises all his investors to start a fresh SIP at the current juncture and ride on the wealth creation journey. Accordingly, Ramesh has started his 4th SIP and is delighted to know that now he can also get a free life insurance of upto Rs. 50 lakhs through his new SIP investments in Reliance Multi Cap Fund..
The above example clearly illustrates how the benefits of SIPs like Averaging, Discipline etc. help in long term wealth creation through equities.
Let us look at it from another angle when markets are correct. It is like buying an product say a QLED TV etc. which we like but cannot afford it, as the prices are high. What if the said product is now available at a Discount? What would be our reaction in such a scenario? We would love to buy right! Similarly, SIPs enable an investor to participate in market across cycles and benefit from Cost Averaging i.e. ‘Buying more units at lower prices and less units at higher prices’.
It is in times of market volatility that one needs to proactively remove the investment apprehensions and continue with the Wealth Creation Journey through a disciplined and systematic investment approach. Investors may benefit over the long term given India’s long-term growth story remains intact.

 Excerpt from Reliance Mutual Fund e-letter; Past performance is not an indicator for future returns. Mutual fund investments are subject to market risks – please read the offer document before investing. 

 

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