7.5X in ten years

How my first equity (mutual fund) investment has fared?

• Almost ten years since I made my first equity mutual fund investment, the amount is now more than seven times the original investment after a lot of ups and downs. ( CAGR- 22.7%- tax free)
• This was an NFO investment and the product was "sold" to me. In recent years, I am not a fan of NFOs.
• Even if the markets fall by half now, the investment would have grown 3.5 times, which is not bad
• Key learning during last 10 years
• Direct equity investment is not easy for an individual investor . Need a lot of time, research and also luck to beat the market.
• Investing through  diversified equity fund or balanced funds with a track record ( through SIP) is one of the easier option available to retail investors.
• Dont track market news on a day to day basis.
• Have very reasonable expectations from equity market in terms of returns (inflation + 2-5%).
• Time in the market is more important than timing the market- but if you buy any asset with a high valuation ( including blue chip shares or equity MF), you may have to wait for a very long time to even  recover your capital. So, try to practice low P/E or low P/B investing which is easier said than done.
• Understanding risks involved is very important before investing in equity - Volatility, average return, standard deviation ,etc.
• Finally, Power of compounding is amazing. Experience it- to realize it :-) .
• Happy new year and happy investing!

This post is not a recommendation to buy any mutual fund.

Equity market is not a casino!

Recently, I received a query from a person

The query ~ I have withdrawn rs 50,000 from my GPF (General provident fund- provident fund for government employees), How can i double it within one or two years .

This is the attitude that most of us carry towards equity markets. It's treated like a casino which can make you rich over night. Once  you loose your money and burn your fingers , the episode of bad mouthing that equity " investing " starts.

One small step - part 2

One small step  part -1

Was talking to one of my new colleague about personal finance, SIP , blog and specifically about the 'one small step' post....

This guy got damn excited and decided to start of with an SIP in equity fund to use his age to advantage and  to leverage the power of compounding. At last I was happy about it ( Please note: - I don't earn any commission by selling mutual funds. it's just a sense of happiness that some one is going to start investing in the right direction at the right age.)

One small step

"A journey of a thousand miles begins with a single step." -- Confucius

When I interact with a lot of people who are interested in personal finance, I do talk about the benefits of SIP investing in diversified equity funds.( Why this is a must for long term wealth creation...so on and so forth). People genuinely seem to understand and are raring to go.

But many do not take the " pain" of enrolling for an SIP.Some collect forms from fund houses then wait. Some have actually downloaded forms , filled them and really didn't have the time to kick start it by posting the completed form.

Looking back! Investing is so simple.

When we look back at the last six months , the markets have moved from strength to strength. Experts have started predicting the upward trend for Sensex and Nifty. The same guys were extremely pessimistic six months back is another story.

Those who have been left out have started cribbing and are planning to join the band wagon now!!

On a personal note, I saw many of my friends stop investing last year and many even stopped their SIPs. This period of volatility has practically emphasised two things.

1. Do not try to time the market.

2. Be a regular investor .( what better than SIP in equity funds for regular investment).

By following this you may not get great returns but at least you can ensure that you get around 15-20% p.a ..and that too tax free ( as of now).

When investing in SIP its important to spread across the installments for a good period and stay invested for a longer period ( min 5 years), so that you can achieve this.

This is as easy as filling up a form ( Mutual fund SIP investment form -Equity fund) and do nothing for years.No need to track your stocks day by day, watch the business news channel or read a economic daily for stock tips.

This way you get to own a piece of corporate India and make all those corporates work for you!!!!

Sounds very simple isn't it? But we are used to complicating things in life more than necessary.!!

Good large cap funds to start SIP

Of late, we have been receiving a lot of queries about some good large cap funds in which SIP can be started. We recommend a few based on our experience.(investors are advised to do their own due diligence before they start investing)

1. Reliance Vision

2. HDFC Equity/ Top 200

3. Birla Sun Life Equity

4. DSP BR Equity/ Top 100

5. Kotak 30

6. Sundaram Select Focus

7. ICICI prudential Dynamic

These are some of the funds in which an investor can start his/her SIP. A longer time horizon ( say 5 years ) increases the probability of a higher return. please mail us in case you have any questions. You can also drop a comment with your choice of large cap funds.

News of SIP taking a hit

"SIPs take a hard knock on market volatility
BS Reporter / Mumbai April 28, 2009, 0:41 IST
Once the most selling product in the mutual fund industry, systematic investment plans (SIPs) are now taking the hit as investors pull out, fearing that adverse market conditions are going to continue."

This news shows the lack of awareness of the investors regarding SIP investments. SIP in Equity funds is essentially to avoid timing the market. If someone is able to identify the market trends in advance accurately, he can afford to investment in the market by timing it. Unfortunately , there is no one person who knows the future graph of the indices.

When the market was moving up, everyone were happy to enroll in SIP as they could see their investment grow month on month. Continuing to SIP in a bull market is a tough proposition , but you will reap huge benefits , if you continue with your investment in a bear / volatile market.

SIP in Equity should be done with the following in mind

1. Time in market is more important than timing the market

2. Only funds that are not required in the long run( at least 5 years ) is invested in equity.

If you are understand out 1 and 2 , you wouldn't be an investor who stops his/her SIP in a volatile market.

Know the power of SIP !! and use it to the fullest to make you rich.

SIP - to be discontinued now???

The author of the following article clear asserts out why it is important to continue your SIP in Equity funds. The author highlighted even though the 5 year SIPs are in red , it should be no reason to discontinue the SIPs.

It may take a couple of years for economies to come on track. Funds will start automatically flowing into markets then. So, if you wait for a perfect day to invest you might loose the bus.

So continue your SIP for long term investment goals and reap the benefit.


http://valueresearchonline.com/story/h2_storyview.asp?str=12990

Golden time to start an SIP

If you have been waiting for a long time to start your equity investment, This should be the right time to do that. Equity markets throughout the globe are going through a rough patch.

The bottom of the markets are not yet visible yet. But no one can say when the markets will bottom out.

If you are having a investment plan spanning more than 5 years, you should start your SIP ( Systematic Investment Plan) in an equity fund. As the valuations are looking attractive when the market reverses its direction , you can definitely benefit hugely.. Alternatively, if you have basic stock picking skills you can start accumulating some good blue chip stocks.

Stock markets start recovering swiftly after the economy bottoms out . It is practically impossible for anyone to enter the market when it is exactly at the bottom. So the best way to gain is to start investing systematically . This will help one gain during the recovery phase (Taking an example of US market -Since 1932, the S&P 500 has gained an average of 46 percent in the year after stocks have hit a bottom)

Ultimately time in the market is more important than timing.

Saving/ Investing early

Investment should be the first expense that we do every month. A sound investment made is going to multiply itself and work for us in the long run. So, the strategy of earn, invest and then spend should save us during the rainy days.

Financial independence can be easily achieved only if we start this habit early.On the contrary , if we get into the habit of taking loans for our lifestyle shift/wants early on and start living on EMIs , your finances may be strained in the long run.

In the article Power of postponing consumption this was illustrated with some example.

Last week I happened to bump into a person who had cultivated the habit of investing regularly during his early years. He had been investing in a fund through SIP and this was long back in 97-00 before he left to US. When he came back in 2007 ,he didn't bother even to check the money in that folio (leave aside the question of withdrawing!!). When he wanted to upgrade his car this month, he thought of checking his portfolio and decided to sell his MF units.

The market is down now and most equity fund NAVs have fallen by 30% since Jan'08. But when this guy decided to sell, he could finance his car fully by selling 70% of his units and the value of remaining units was almost 3 lakhs. He was surprised by considering the fact that he had invested only 1/10 th of the current value during the investment period.

This awesome performance of equity may or may not get repeated in future again.But it is definitely worth investing and reaping the benefits manifold rather than just thriving on EMIs.

This guy got a car ( worth almost 7 Lakhs) out of just 70,000 which he invested a decade ago and left with some good money too!!On the contrary lets look at a person who buys a car on EMI. he pays almost 15% as interest. By making money work for you ..you tend to gain in the long run. But this rquires tremendous patience and a systematic approach.

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Insurance with SIP

Recently found this post on one of the blogs.

http://blog.costaverager.com/2008/08/get-upto-35-lakhs-of-free-insurance.html

Great job by the blogger on SIP+ Insurance. A thorough analysis of the latest available options wrt MF/SIP+ Insurance.

Astrology, Economics and Stock Analysis

When there was a proposal a couple of years ago to include astrology as a mainstream course of study in universities, there were big hues and cries about it. Many questioned the rationality behind astrology and ridiculed that future prediction was just a cheating game.

But when top notch schools churn out economists and analyst ( thanks to RATIONALE study on macro economic, micro economics, technical and fundamental analysis!), we welcome them into the corporate world with a big heart.

They also start doing this prediction job, When oil moves up they predict it to go up and when it starts falling , they try to reason it out too. When sensex is at 21,000, they say that it will reach 27,000. But when it hits 13000, they start talking about 8500. They keep changing their stance each and every day and try to support their stance with a strong fundamental logic (????!!@#). Some of them may be doing this for their personal gain by operating in the futures market based on their stance. We never question these people or no one has ever tried to fix a accountability for them. But we keep hailing the schools that keep churning out these intellectual graduates and we cry for more of such institutes. Not that I am trying to support education on astrology in schools but trying to question our rationality 'on the stance of maintaining rationality' in education.

You may ask, why this article on a personal finance blog. The answer is quite simple. Don't follow these experts blindly but follow a simple and regular investment plan like SIP to make money in the long run.( Hope this works!!! :-) )

Dont stop your SIP

Mr . X started to invest through SIP in two proven equity diversified funds last June. He started of with a aim to keep investing for five years. ( a very good long term plan indeed). He was an happy man till Jan'08, as he was seeing his funds growing. Now after the downward run in the stock market, he is thinking whether he should discontinue his SIP. He is not happy because his portfolio has moved into negative territory.

Mr. X should actually be happy for the fall now because he is able to get more units at these lower prices. Instead of stopping- a better strategy would be increase the SIP , if possible. The amount you SIP in equity MF during bearish phases would yield more returns when the market turns around.

Don't stop your SIP , if you are baffled by the downturn!!!

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Comment on investing

Recently there were a lot of comments from other blogs. They all talked about how the investors (??) have lost money lost in the market in the recent past.

These were a sort of advertising comments having links to the respective blogs.The comments were not published not because of this reason, but all along they did talk about traders as investors.

If one does trading and calls it an investing, its like calling an engineer ..a doctor...!!. If someone is buying and selling stocks just for a price increase/ decrease that he expects in a short term ( period of one day to a couple of years), he is a trader.

The best way to create wealth is to stay invested in the market for a longer time horizon. Mutuals funds are the best way as most of us are not experts in picking up stocks.

1) Never get swayed by any articles/comments which calls trading as investing.

2) Believe in long term investing in equity through SIP route in proven diversified MF.

Planning to SIP??

No one is talking about markets and investments these days , as they used to talk a couple of months ago. Conversations on Stock/ MF , Browsing of Investment sites/blogs, Display/ reading of investment mags. are not a great trend now as it was sometime ago.

The Fad seems to be gone. For one who is seriously looking at creating wealth for the long term, equity markets are a great place to invest now. Not that the worst is over yet. But investors who invest during tough times and are patient ( 5 years and above) will reap great benefits during the boom cycle that follows.

If you have the right investment spirit , this should be the best time for you to start an SIP in a diversified mutual fund ( having a long term investment view). If you are already sipping it out, you continue to be on the right path of wealth creation

Stock market investing and panic

At ideasmoney we have always emphasised on the need for long term investing in equity (> 5 years) and Systematic investing. Moreover we have always suggested to invest only such money in equity which is not required for at least a couple of years.

People who panic are only traders and if you have been investing through vehicles like SIP, you need not worry at all.

There are two more things that one needs to follow

1) Never ever think experts ( analyst) are gods-

Many people tend to follow words of analyst appearing on TV seriously. They know the trend but they are not God's to know the future. Recently a famous analyst wrote a post on the lessons of stock market in their website. It was all words of wisdom but he never uttered those words before crash. He wouldn't have anticipated the crash ( which is not a real crash for investors) either!!!.

2) Don't let headlines rule you.

Media starts writing about bulls and bears the alternate days. They create huge hype on volatility of market. Never get swayed by them too.

Most important is have confidence in time and have realistic expectations {returns on your investment (15-20% pa)}.

Happy Investing!! http://easycrafts.blogspot.com/ - the ultimate craft blog!!

Is it the right time to enter the market

The most frequently asked question these days is " Sensex has crossed 20K , I have never invested in equity and will I get to gain if I enter the market now?. What are the investment options?"

Any day is a good day for a person to enter the market provided he understands that time in the market is more important than timing the market.

An SIP in a equity mutual fund running over a couple of years would be the best way for the retail investor to enter the market.

Always remember to invest only such money which you need not have immediately into stocks/Equity MF. i.e don't ever invest money that you would need in the short term into stocks(unless you are OK to play around with the associated high risks).

Understand Long term is at least 3-5 years and anything less than that can be termed as a short term investment for equity investment.

So, SIP your way to wealth.

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is this the right time to start investing in stocks, shares, IPO, Mutual funds, Equity, I am new investor, I am new to shares, stock markets

SIP in a single stock?

Like SIP in a mutual fund , can one do a systematic investment in a single stock??...

It means allocating a month every month to purchase a particular stock. Say, on 1st on every month I would buy 2 shares of company X and accumulate it over a period of time. This is definitely a great idea. But SIP works better in case of a portfolio( read as collection of stocks or equity MF). This is because when you invest in a single stock, your risk return proportion is very high. But if you are thoroughly convinced about the growth prospects of a stock you can go ahead understanding the risk involved.

To understand this in a better perspective, someone who was buying Reliance stock every compared with someone who had been accumulating Infosys. Both of been accumulating blue chips , but you know the current scenario is not favouring IT stocks. Things may take a turn tomorrow. So, this kinds of risks / returns and your goals need to be understood before you start an SIP in a single stock.

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Base Effect

The amount that you invest is very important in getting a return. eg. A gets 100% return on his investment and B gets 50% return during the same time period of investment. On the outset A seems to have gained more . But the amount invested also matters. If A had invested Rs 1000 and B invested 1 lakh. A's gain is Rs 1000 and B's gain is 50,000.

So, we can call this the 'Base effect'. Having a decent investment base is very critical to make a impact. Many may not be able to accumulate huge money for investments. So , its always better to keep growing your investment base slowly and steadily. Systematic investment plans like RD and SIP would help the investors build a strong investment base over a period of time.

Little drops make a big ocean. Small amounts can lead to a huge investment base. Happy Investing.

SIP is the best way to create wealth.

SIP Calculator

Calculator for SIP returns

Link for calculator

Don't forget to consider the entry load on SIP when entering the monthly contribution amount. For example, if you invest Rs 1000 p.m. (Enter only 1000- entry load as monthly contribution).