Start investing early, stay with SIP through thick and thin

Driving to work is an ordeal: traffic snarls, honking, a two-wheeler grazing my car's sideview mirror and a delayed entry into office. Last week, I happened to leave home 15 minutes earlier than usual. Miraculously, driving was a pleasure. 

There was traffic on roads, and auto-rickshaws were performing acrobatics too; but I seemed oblivious to them. It took me some time to realise that because I had enough time to reach my destination, I was less stressed and I made it on time to my office, even whistling as I walked in. That's possibly what happens to investors who start executing their plans early, I thought.

We see mutual fund advertisements screaming out of billboards and newspapers boasting of their performance over the recent and not-so-recent past.

I tied a blindfold to the short-term returns, as I know that equity investing is for the long term; and viewed their returns over the past five years.

I could calculate and then salivate at the notional gains I would have made had I invested in the index (using the Nifty for comparison) then: had I put in Rs 3 lakh five years ago, my investments would be worth Rs 7.16 lakh, or a return of 19% p.a, compounded annually. I brought myself back to reality quickly as I realised that I would not have had that amount to invest at one go in 2005.


The possibility that I could have made a profit of over Rs 4 lakh in the past five years continued to haunt me. 

Some quick calculations later, it dawned upon me that I could have easily kept aside Rs 5,000 per month during that time, and Rs 3 lakh would have been in my piggy-bank.

Obviously, since not all the money was put upfront, my absolute returns would be lower. Had I invested a regular amount in the Nifty on a monthly basis, my returns in the past 5 years would be a healthy 13.7% pa on a compounded basis. That would have resulted in my investment growing to Rs 4.27 lakh today, or an absolute return in excess of 40%.

Then, I found a mutual fund statement (can't tell you whether it was mine — confidential!) where Rs 5,000 per month was invested in a systematic investment plan for the past 5 years in a largecap fund.

I was thrilled to see the results (see table). The value of this investment was Rs 5.44 lakh, or a return of over 80% in the past 5 years.

Moreover, these returns were achieved with a total peace of mind — once the systematic investment plan was started, it went on without a pause and irrespective of market movements.

It was then that I turned to the mutual fund factsheet for this scheme and the results for systematic investment of the same amount of Rs 5,000 in the past 10 years blew me away. In this case, the total invested amount would have been Rs 6 lakh and the fund value was over Rs 41 lakh. Now, I would have settled for this any time.

What this taught me was: start investing early, stick to equities for the long-term , continue your systematic investment plan — come thick or thin.

Make sure you start driving to office early and watch your productivity soar. Investments follow pretty much the same rules.