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.


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.


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. 


Corrections are Temporary; Growth is Permanent…

Just go through the following pictures to see market falls & subsequent corrections…

One has to stay at markets highs as well as lows to average out the ups & downs (or) for one simple reason no one knows in advance which way the markets are headed…


How long is long-term in Equity?

Equity and Long Term go hand in hand. Whenever you hear or read about investing in Equity, the concept of long term follows. That we should invest in Equity for Long Term, because Equity is risky in the short term.

But what exactly is this long term? How long is long term for Equity investing?

Over the short term, equities are volatile, there are times when stocks have even doubled overnight, but there are also times when stocks have fallen by half over a night. So, the principle of long term stands to negate the volatility associated with equity over short periods.

The following is the BSE sensitivity table, it shows the returns from the Sensex for different investment periods from March 1979 until March 2018.

This table explains what we narrated above, as we see over short periods, both the maximum as well as the minimum returns are on the extreme, but as we move towards longer periods, the returns are stabilizing and the gap between the maximum and the minimum is alleviating. In shorter investing periods, the probability of making losses is quite high, but as the horizon increases the probability of loss significantly decreases and eventually becomes 0. So, an Equity investor in order to get desired returns and maintain enough distance from the risk arising out of the volatility, must have a holding period where the probability of loss is low or Nil.

So, coming back to the main question, how long is long term?

The longer the better. There is no ceiling to the term long term, the more time you give to your investment, the less prone is your investment to risk and compounding works to generate superior wealth for you. Quite often we come across anecdotes where people totally forgot about their share certificates and made humongous wealth when they eventually sold their investments. In some cases, the investor died and his family got enough money to sustain a lifetime from his Equity investments which he made decades back. There is a popular equity investing strategy which is called ‘being dead’, that is invest and then forget about it.

Holding an investment perpetually can generate breathtaking returns and create spectacular wealth for you, but may not be practical. You have your needs, you have your goals to be fulfilled, which is why you invested in the first place. Equity markets grow in cycles, there is surge, then there is a steep correction before the markets eventually stabilize. To neutralize the risk in the investment, the holding period must cover all the phases of a cycle, which is generally between 5-10 years.

Generally Indian investors do invest for long periods of time, but mostly in traditional investment instruments. Investors invest in traditional tax saving instruments like PPF and then maintain their cool till the PPF’s maturity, which is 15 years. But when it comes to Equity, they will keep checking the prices/NAV’s, get tensed when their investments fall or get excited when they are making profits, and eventually end up selling their investments to avoid losses or to book gains. If the investor gives the same amount of time to his ELSS investment as he gives to his PPF, and simply forget about the investment as he does in case of his PPF, he will be amazed by the amount of wealth he could create by being invested in Equity.

Following is a snapshot of the value of Rs 1 Lac invested in PPF and in an ELSS scheme for 15 years.

Investment Date 1st August 2003 1st August 2003
Investment Amount Rs 1 Lac Rs 1 Lac
Return 8%** 19.36%*
Value as on 31st July 2018 (15 years) Rs 3.17 Lacs Rs 14.22 Lacs
* Average return of 13 ELSS schemes in operation since 2003
** Assumed

An investor who invested in an ELSS scheme 15 years back would have made 4.5 times more wealth than an investor who invested in a PPF at the same time. And such superior returns are witnessed in all kinds of equity schemes over long periods, be it diversified schemes, large cap schemes, mid or small cap schemes, thematic schemes, etc. So, like you give time to your other investments like PPF’s, or gold or property, if you maintain the same amount of patience in case of your Equity investments also, some of your greatest blessings will come with these investments.

Note: Always Diversify your investments across various investments – no single instrument can be called as the BEST ONE!