Discipline is key to investing

Last fortnight, the mantra to investing was “starting early”. This time it is “investing regularly”. We go on yatras to holy places for meeting spiritual goals. Many of these are remote places located in mountains. In the older days, it took a lot of planning and suffering to reach there. Yatris focused on reaching the top and took the journey’s ups and downs with the same enthusiasm. They adjusted their speed according to the terrain. While they walked on a flat surface, on an incline, they trudged along. However, nobody gave up the yatra because of the difficulties faced. A lot of things are common between the yatra to attain spiritual goals and that for attaining the financial ones.

Like a yatra, the financial journey has to begin with a goal. A lot of us save or invest without any particular goal in mind, paying the price in terms of lower returns. The financial journey can’t be given up because the goals look remote or there are difficulties on the way. One has to keep moving to attain financial liberty. This continuous journey can be described as regular, or, systematic investment. If we see equity markets in a growing economy like India, they keep rising over a period of time. Surely, there can be extended periods of downturn, but, eventually, indices start going up.

The BSE Sensex has risen 83 times over the last 30 years, or, 10 times in the last 20 years, or, 6 times over the last decade. It makes sense to invest in the Sensex and forget about it. All of us know the statistics. The rising trajectory of the Sensex is known to all savers. Inspite of the towering performance, equity remains under-owned. Worried about the volatility of the markets, savers don’t invest in equity. The fear of losing capital — even for a temporary period — on a notional basis stops savers from investing in equity.

If you make regular investments in a market which is moving up and down like the road to the holy shrine, you will still meet your final goal. The hardship of notional losses in the intervening period can be easily brushed aside, focusing on the ultimate goal. Returns from systematic investment plans (SIPs) across blue-chip stocks, Sensex, Nifty or mutual fund schemes over the last 10, 15 or 20 years have been phenomenal. Probably, such returns are not going to repeat themselves again.

Regular investment across a basket of blue-chip stocks, equity index or mutual fund schemes will deliver good returns. A common error an investor should safeguard himself against is the tendency to discontinue SIPs when the markets are down. When there is a sale in the market, it’s time to buy more, rather than stop. Don’t stop your SIPs just because the markets are falling. If at all, one should consider stopping them only when the markets become expensive on valuation. Another thing investors should keep in mind is that the amount of the SIP should increase with the increase in income. An SIP started 10 years back, when the income was much lower than today, is not adequate. The quantum must increase in tandem with the income. Regular and early investments are simple, yet most effective. They are the guru mantras to achieve financial nirvana.

The writer is president (corporate banking), Axis Bank.