Photo: iStock
Photo: iStock

True stories that veteran SIPpers tell

Equity funds are prone to volatility but their returns are also high. Enter systematic investment plans, they mitigate volatility and still give good returns

As an investor, Navi Mumbai-based, Pramod Thatte, 64, has seen it all. He has seen many rising and falling markets. He has even seen the days when the erstwhile Unit Trust of India (UTI) was at its peak, launching one closed-end scheme after another. In those days—he doesn’t even remember the year but says it was in 1990s—he used to work in the tiny coastal town of Chiplun, Maharashtra.

Whenever UTI used to launch a scheme, Thatte used to ring up a broker friend, as did many of his office colleagues, fill and submit the application forms. “UTI used to send us the share certificates by post. We used to get them a month after we invested," he said. UTI eventually collapsed (in 2001), but it gave Thatte a strong footing in mutual funds.

Pramod Thatte (64); Occupation: Biotechnology consultant (post retirement); First SIP in: May 2013; Portfolio return: 15.50%

Eventually, he started investing in private sector mutual funds, as and when they started entering the market. In 2004, he started his first systematic investment plan (SIP).

For many others though, it was tough initially. Ahmedabad-based paediatrician, Karnav Desai, was lured into investing in mutual funds when technology funds were launched with much fanfare in the early 2000s. He had invested in the new fund offer (NFO) of Aditya Birla Sun Life New Millennium Fund (ABNMF) in January 2000.

In those days, it was known as Alliance New Millennium Fund (ASNM), way before Aditya Birla Sun Life Asset Management Co Ltd acquired Alliance India Asset Management Co Ltd in 2005. ABNMF’s net asset value (NAV) was Rs10, and then started the big fall in equity markets—started by the fall in technology scrips. Technology funds like ASNM fell sharply too. In August 2001, its NAV fell to Rs3.5. That’s when Desai got fed up and sold it. In September 2001, the scheme’s NAV hit its lowest point of Rs2.3.

Desai was a late starter and his first mutual fund investment was in a sector fund, the riskiest kind of mutual funds. After working for close to 2 years in a hospital after his graduation, Desai and his friend—who was also a paediatrician— started a private clinic in a hospital, about 20km from Ahmedabad. After working there for a decade, both friends pooled all their savings and bought the entire hospital. And then came that money-destroying investment in ASNM. But he came back to mutual funds in 2003 when a chance meeting with Ashish Shah, one of India’s largest mutual fund distributors, introduced Desai to SIPs. He started with a meagre investment of Rs1,500 a month back then. Today, he invests close to Rs42,000 a month.

But just by investing in mutual funds, or doing so through SIPs, doesn’t guarantee success. How do you get the most out of your SIPs? Mint spoke to several people who do invest through SIPs, as well as financial advisers, and found out some of the characteristics of successful SIP investors. Here’s what they do to build wealth.

Equity markets can be brutal. In 2008, on the back of a global credit crisis, the S&P BSE Sensex fell 52%. Just between the time Lehman Brothers collapsed in September 2008 and the end of that year, Sensex had fallen by 35.7%. The crash in technology stocks in 2000-01 had also unleashed havoc. In calendar years of 2000 and 2001, Sensex had fallen 21% and 18%, respectively. What do you do? Should you stop SIPs and sell your funds?

Chandramohan Puppala (47); Occupation: Content management consultant; First SIP in: February 2005; Portfolio return: 20%

His perseverance paid off. In 2009, when he left his job and took a sabbatical, he continued the SIPs even though his income, at the time, had stopped. Six months ago, Puppala left his steady job and started his own content production media house. Income, he said, is slow to come by but his SIPs continue. He refused to divulge how much he currently invests.

“Anchoring investors during falling and turbulent markets is essential," said Vinod Jain, principal adviser, Jain Investment Planner Pvt. Ltd and Puppala’s adviser for many years. “We didn’t notice too many SIP closures in 2009. But in 2013, a lot of SIPs had closed when investors saw negative returns for 5 years," he said.

The Mint-Crisil Research SIP Study shows that 5-year SIPs, which had started from time periods between July 2007 and April 2008, had given negative returns. But Jain says that even if markets go through a bad phase, he doesn’t disturb ongoing SIPs. “Investors should see their equity-debt split and allocate assets according to how much they can take," he said.

In the middle of all this investment talk, let’s not forget that we save for our goals and it’s okay to spend our money, even withdraw our investments, once we reach our goals and it’s time to spend. When Mumbai-based Shiv Kumar Kanojia bought a 1,000 sq ft house in Dombivali, a suburb that is about 50 km from Mumbai, he withdrew his mutual fund investments to pay for the down payment in 2010. With that, he paid 50% of his house value in those days, as down payment. In 2014, he needed to pay about Rs5 lakh for his daughter’s college admission. Again he dipped into his mutual fund investments, instead of liquidating the LIC policies he had bought for her higher education. “I needed the money at that moment and it came up all of a sudden. The LIC investments were not liquid," he said. Kanojia had started investing in mutual fund through SIPs in 2006, by putting aside 5% of his then salary. Now, he invests about 30% of it every month.

“It’s absolutely okay to spend your money when the time comes," says Gaurav Mashruwala, a Mumbai-based financial planner. “Have SIPs lined-up to your money requirement. If you have a child who would go to college in a few years, and you’ll need money for that, have one SIP specifically for that. If you and your spouse wish to go on a holiday in, say after 3-4 years, have another SIP earmarked just for that, and so on," he said. This way, Mashruwala says, you would also choose an appropriate asset class; equity mutual funds for goals that are far away and debt funds for goals that are just 2-3 years away.

Before retirement, Pramod Thatte’s job took him to many places around the world. Today, he and his wife are busy spending their retirement years travelling the world: Western Europe, Scandinavia and the Far East have been ticked off the list. “My wife used to complain in my working years that I always travelled for work but she couldn’t. Now, I am trying to make it up to her," he says laughing, while revealing his plans to travel to Africa next year, and see the continent’s wildlife.

Long-term investing is good, but what do you do if something goes wrong with your scheme? Or what happens if your fund house gets acquired by another and you don’t like the new one, or what if your fund manager leaves? Should you continue with the same scheme? “Not necessarily," says Jain.

These days, fund houses allow you to do SIPs in perpetuity. These SIPs don’t have a closing date. However, many advisers suggest that you start 3-5 year SIPs and then take a call on which funds to stay invested in, and which ones to exit and reinvest elsewhere. “We don’t believe in perpetual SIPs. SIPs must go on, but the choice of funds can change depending on how your funds perform," Jain added.

Our study shows that several schemes have not done well over long periods of time. For instance, Baroda Pioneer ELSS 96-A lost 2% over a 6-year SIP that started in 3 March 2003. UTI Top 100 Fund lost nearly 13% in a 4-year SIP that had started on 1 March 2005. “Even in case of SIPs, there is a rationale for periodic review or event-based reviews. The fundamental characteristics of a scheme can change. Schemes may be merged in case the fund house has similar schemes. Change in fund manager, and acquisition by another fund house may also take place," said Bharat Phatak, founder and director of Wealth Managers (India) Pvt. Ltd.

Rising equity markets since the past year have prompted many investors to ask the question: are the markets overheated and should we withdraw? On 25 October 2017, Sensex crossed 33,000-mark for the first time. After having risen by just 2% in 2016, it has already risen by 25% so far this year. Will the markets correct?

Chennai-based professor Easwar Krishna Iyer, who has consistently been investing close to Rs50,000 a month in his SIPs across six schemes since 1991, is not worried. Like most of us, he aspires to lead a comfortable retired life. Aged 52 now, his goal is to have a corpus of about Rs1.5-2 crore when he turns 58. “Neither I nor my wife is going to get a pension. Hence my SIPs should take care of most of the expenses after I retire," said Iyer.

But what if, as many experts predict, there is a correction in the markets? “I will sleep through it," he says. For most of us, that’s easier said than done. “As a professor, I understand real markets, I understand how SIPs work. If markets go down, I get more units. Even if there is a market correction, the SIP mechanism will take care of itself," he said. Iyer adds that when you invest for the long run, you have to temper yourself to stay invested for the long run. He added that there is a chance of an equity market correction if the current government doesn’t get re-elected in 2019 central government elections, but he added that he isn’t losing sleep over it. “I will get more units through my SIPs if that happens," he said.

Although you can invest in mutual funds directly, without a distributor or an adviser’s help—and many of us do that successfully—the benefits of good advice are invaluable. Especially during turbulent times or rising markets like in present times. Whether you go for a fee-only financial adviser or a plain-vanilla distributor, the presence of a good guide can be invaluable in helping you reach your financial goals. If you have the wherewithal to select the right mutual fund schemes and also have the time to manage your investments, opt for direct plans. Else, opt for an adviser to do your research work and guide you.

Thatte now passes on the good advice that he received from his distributor, Krushna Finance, all those years ago to his two children—elder daughter now aged 34 and a younger son aged 30—and nudges them to save 20-25% of their salary every month in SIPs.