What most of us lack as investors is conviction, confidence and belief that our money invested in equity by way of stocks or equity mutual funds can grow and offer wealth creation possibilities. This is a serious problem that leads to wash away a great opportunity making our hard earned money to work for us.
The only possible option to instill the required conviction, confidence and belief to invest in equity related instruments, ideally through mutual route, is to start investing in the month and year a child is born in any household. Would any parents doubt that their child will grow and not become a self-dependent person over the next 25 years? Would they have lack of trust that their child will not become a competent person in these years? Don’t they put every effort to ensure that their child grows and achieves the aspirations and ambitions? If the answer is that there would be no uncertainty of any of the said aspects then one should definitely start investing the year a child is born.
For an investor (parent) the investment growing over the future 25 years is as true as the child growing into becoming a responsible adult; yes, there is no doubt that there would be tough times as parents during this journey of the child growing up at different stages, but that’s quite common and acceptable, isn’t it? The investment too would go through such upheavals in these years in a similar fashion.
At the end of 25 years the parents would surely feel a great sense of achievement and also accomplishment seeing their child grown into becoming a competent person. What makes us think that in these years if they just stay invested and display the same patience and perseverance with the investment in equity would be a bad idea?
There is hardly any difference between the child’s growth and the growth of the investments too which requires patience, perseverance, belief and nurturing. In fact, two investments are made – one on the child and one for self and if we look at 25 years of performance history of certain diversified equity mutual funds that were launched then we will have all the reasons to believe and accept that an investment done either by way of SIP or lump sum would have offered returns beyond expectations. Just like a child would have grown and become a reliable adult, the investment too would have become quite big.
An amount of Rs 1,000 invested every month from December 1993 till August 2018 in each of India’s two oldest private sector mutual fund schemes – Franklin India Bluechip Fund and Franklin India Prima Fund -- would have grown to become Rs 37.16 lakhs and Rs 80.89 lakhs, respectively. A lump sum amount of Rs 1 lakh invested for the same period in these two funds would have made an investor accumulate Rs 50 lakhs and Rs 95 lakhs, respectively. There are several other equity funds too that have been equally good over the long term.
Mutual funds are a simple investing tool that requires just small amounts and goals, the rest would be the magic of equity market and power of compounding. Treat your investment as your child and you will not be disappointed.
(Balaji Rao has written six books on investing and personal finance. He has 23 years of industry experience and six years in academics.)