A few days back I wrote a piece on ‘Young, Glamorous, Riskless and Broke’. This was about the kids born in the 1980s.
Let us take a kid born in 1987 – would have graduated in 2007-8 and finished his/her MBA in 2009. This was not a great season to graduate, but would have found a decent job – say paying Rs. 400,000.
Assuming that this kid was very smart he/she would have started a SIP in 2009 or 2010. Now if her parents were from the public sector or worse from the government cadre they would have said the following:
-put money in PPF
– buy a LIC policy – it belongs to the government, your money is safe
– make a RD in a bank.
A smart kid may have done all this with small amounts, but also started a SIP in an equity fund.
Circa Nov 2011. Very good chance that the SIP is showing negative returns, especially if it is a dividend payout scheme (like what all elss schemes ought to be). Imagine the conversation that the kid must be going through at home:
Dad: I told you not to put money in equities….see..you are losing money!!!
Kid: But dad equity is for the long term…
Dad: Do not teach me..I work in a bank, I know how it works
Kid: I am doing only 5000 per month – of which Rs. 3500 is in an ELSS
Dad: You could have opened a FD in my bank. Same tax benefits!
Kid: but dad the interest is taxable…na?
Mom: Just because you have done MBA you think you know more than your dad? He has 22 years experience in banking – same bank that too. He is now close to becoming a GM in the bank!!!
Kid: Mom I am not arguing, just telling you the facts…bank interest is taxable while mutual funds are free of tax…
Mom: Ok enough of your argument…see how much this money would have become in 2-3 years in a bank or PPF. Will it ever become that much in this so called equity? My friend’s son lost Rs. 3.5 lakhs in the share market. We are not so rich to lose it. Remember all this money will be required for your wedding…
Kid: Ok mom…bye see you dad…I will write the bank clerical exam. Afterall the MBA degree is not really helping….
My take on this conversation:
it is really difficult for kids (and even elders, but recent converts) to keep investing in a falling market. Their conviction is severely tested during such times. The market has really fallen off the cliff – and we do not know whether we are mid way or have reached the end. Some very smart people have stopped their SIPs about 12 months back and are currently looking smart.
However it does make sense, kids, to keep investing. If you are scared, it may make sense to reduce the amount – but if you are aggressive you should be starting a new one now! Ok, jokes apart, just keep the SIP going, and in 12 months, 20 months or 30 months, I promise you, your returns will be better than the debt options – all the best.
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