My Personal Finance Story – How I Made a Profit Even During Global Recession

Even today, I recall an anecdote my fellow post-graduate told me as we were doing an operation together during a discussion about the value of saving small amounts of money. He spoke of how his mother used to save money meant for household use and invest it in mutual funds back in the late ’80s and through the ’90s, much to her husband’s amusement. It was often small amounts but she persisted as far as she could. Years later, when her son – my friend – was to join a medical college and her husband sat down with her to discuss funds, she showed him the statement slip from the mutual fund house. The small bits of money saved in those early days had gone on to provide her a ‘meagre’ 4000% return as the NAV of the fund rose exponentially over nearly 15 years. Her ‘small household savings’ ended up funding my friend’s entire medical education.

Today, my colleagues and I look back and laugh at the ways we survived as students. But back then, we literally used to strain and starve as we neared the end of the month, our princely monthly stipend of three thousand rupees often requiring assistance from our parents even at the age of 29. I still remember fellow doctors lamenting about how they were embarrassed to ask for money from their parents to buy diapers for their kids.

One of the most important lessons about finances that I learned during that period as a student earning Rs 3000 a month came at a time when millions were losing literally billions around me. I am referring to the global recession that hit the world in 2008/9.

Along with global markets, our stock markets crashed terribly in that period. And yet, it would prove to be a very fruitful period of investment for me. Let me add here that I did not choose a particularly brilliant mutual fund to invest in either. Though the said fund belonged to one of the most popular mutual fund houses of the country, this particular fund was a relatively new one that I mistakenly assumed would be promising.

With the SIP (systemic investment plan) in place, I watched as Rs.1000 was invested every month. I continued this, watching as the mutual fund crashed from a NAV of 10 to 5 and slowly crawled back to 10 three years later.

Now think about it. In the first place, I did not have a lumpsum to invest. But let us assume hypothetically that I did.

• Had I invested a lumpsum at the start of my post graduation, at the end of 3 years I would have got the exact same amount back with no benefit at all since we started and ended at 10.
• Investing the same amount in stocks would have given me acidity considering how much comes down to precise timing especially in a market which was down for an entire year.
• Keeping the money in a fixed deposit would have fetched me a profit of roughly 24% after 3 years. Keeping it in a savings account would have fetched me barely 12%.

Instead, here I was, relaxed and smiling at the end of a horrible financial year. You see, that was the benefit of SIP and why I recommend it to you even today. When the NAV was 10, Rs. 1000 bought me 100 units. When it was 5, I got 200. By the time the NAV returned back to 10 (and eventually 12 a few months later), my investment had averaged to 6. In essence, I had made a tidy profit of 100% in a terribly bearish market.

I never stopped investing. Well, I stopped in that particular mutual fund, of course (I’m optimistic, but not stupid!) but continue to this day in other funds using the SIP method. Today, my monthly investments have risen mirroring the rise in my own salary and as the years have gone by, the modest sums that disappeared from my account every month have built up giving me an overall profit of close to 100% (or a few extra lakhs, in monetary amount).

I wanted to speak about SIPs and mutual funds today for a particular reason. Early indicators do warn of the possibility of another global recession hitting us sooner rather than later and indeed, the markets all across the globe are a bit jittery at the start of 2016. And yet, I find even though I have a lot invested in there, I am not scared. Because I know that whether the market sails or crashes, as I long as I look at the long-term scenario instead of aiming for short term gains, I will be actually investing smartly irrespective of whether I meet a bull or a bear at the market.

My advice to everyone. Invest early. Invest wisely. Invest via SIP.

It may seem a pitiable amount at the beginning but as the months go by, the numbers add up appreciably and you find yourself thanking that younger you for the foresight.

I know I do.

Anaesthesiologist, Dr Roshan Radhakrishnan, believes in the healing power of love and laughter but practises medicine just to be on the safe side. A dog-lover, buffet assassin and sitcom addict, he has over three dozen short stories published in multiple anthologies and e-magazines till date. He blogs at Godyears an award-winning, popular blog in his spare time.