Sunday, 24 January 2016

Wealth Creation Lesson From the Sun

The Sun is the source of all life on the planet. It dutifully rises everyday, without fail to break the night into dawn. Fog. haze, or cloud cover may subdue its light and energy on some days. Yet, it rises with the same intensity and persists in its endeavors. Eventually the clouds clear out, the fog subsides and the haze gives way for its light to shine brighter than ever.

But, what would happen if the Sun were to lose hope due to these 'disturbances' and decide to stop rising?

Creating wealth through Systematic Investment Plan (SIP) requires persistence like the sun to push beyond the haze, clouds and fog!! There would be days, weeks or at times even months of "thick cloud cover" when the markets are in panic mode, owing to whatsoever reason.

Yet, if one fearlessly endures the days of "Thick cloud cover" and continues with the SIP month on month for years continuously, their wealth grows beyond imagination.

Let's rewind and go back 20 years to January 1996 and relive the experience of an investor who would have started their SIP in a diversified Mutual Fund in that month.

Since then, the stock markets have seen some major prolonged 'cloud covers' which must have tempted the investors to  discontinue their SIP in a Mutual Fund.

  • Year 1997-98: Asian Financial crisis - Starting from Thailand and spreading soon to Malaysia, Phillipines, Indonesia, South Korea, Hong Kong, China and many others. 
    • The BSE Sensex fell 33% - from 4,320 in Aug. 1997 to 2,860 in Sept. 1998
  • Year 2000-2001: Dotcom bubble crash; Ketan Parekh Scam, Twin Tower Attack
    • BSE Sensex crashes 48% - from 5,465 in March 2000 to 2,820 in Oct. 2001
  • Year 2008-09: Global Financial Crisis
    • BSE Sensex crashes 62% - From 21,200 in Jan. 2008 to 8,050 in March 2009
And then there is that short-term fog which hits the markets from time to time:
  • Kargill war
  • Russia attacking Ukraine
  • Indian Current Account Crisis of 2013
  • North Korea Hydrogen Bomb
  • Chinese slowdown
What would be the result of persisting through these long term cloud covers and short term foggy days?

Look at the results below: (Assuming a monthly SIP of Rs. 5,000 started on 1-Jan-1996 for 20 years)

  • Total Amount Invested over 20 years: Rs. 12,00,000

     Approx. accumulated Value as on 1-Jan-2016 
    Compounded Annual Return
     Birla SL Balanced 95 Fund
     Rs. 1.40 Crores
     20.9% p.a.
     HDFC Equity Fund
     Rs. 2.06 Crores
     24.0% p.a.
     Reliance Growth Fund
     Rs. 2.47 Crores
     25.5% p.a.
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