Tuesday, December 8, 2015

Acchhe din are for every investor

There was once a poor farmer in Assam—Anup-- who earned his living by selling the produce from his small plot of farmland. He was living under abject poverty. He was barely left with enough surpluses to buy better quality seeds. As a result he could not afford better education for his children.

Then one day he heard about a particular variety of bamboo which yielded better yields. He made inquiries with his fellow villagers about this variety of bamboo but everyone advised against the idea and advised him to continue doing what he had been doing all these years rather than trying the untried.

Anup however decided to try out the particular variety of bamboo. He took a loan from the village money lender and bought the seeds of this type of bamboo and sowed them in a corner of his field.

Time went by.

1 year passed. Nothing happened. Anup was a little disappointed. But he did not lose hope.

2 years passed. Nothing happened. Now Anup was disheartened. Villagers started mocking him.

Only green shoots were visible in the third year. Anup still prayed for “Achhe din”.

In the fifth year, the growth in the bamboo plant started. In next year he reaped a rich harvest of one of the best variety of bamboo. Not only did he manage to pay off his dues to the money lender, he was left with a surplus good enough to bring about a qualitative change in his life. “Achhe din” had finally arrived for Anup.

Now, how does the above anecdote relate to the Mutual fund and wealth generation?

Let me give a real life example of the role patience plays in wealth generation. I started an SIP in IDFC Premier Equity Fund (Growth option) on 15/11/2007. The choice of fund was solely on my conviction in
  • IDFC Mutual Fund
  •  Potential of the mid cap segment to deliver above average returns;without any active monitoring from my side. 
My friends, colleagues mocked me for choosing IDFC MF over bigger players like HDFC MF, Reliance MF.
However, I decided to go with my conviction and went ahead with SIP registration.

The investment-returns scenario played out as under:-

Market value
1   (15.11.07—15.10.08)
4   (15.11.07---15.10.11)
5   (15.11.07---18.10.12)
7   (15.11.07---20.10.14)

To summarize, you need following for a successful and rewarding investment:
  • Convictions in your belief—believe in what you do, believe in the lineage of the fund house; believe in the long term potential of the equity market despite its short term volatility. More importantly, believe in your financial advisor and his expertise
  •  Select a fund that meets your risk profile.
  •  Start an SIP and put it in an auto pilot mode. DO not monitor its performance on daily or monthly basis. Even a child needs 9 months to be born.

·         Achhe din will come as it is time in the market that matters rather than timing the market.