If You Don’t SIP It’s A SIN

Updated: Oct 25, 2022

The other day, I went to a bank ATM to get some cash. There is a small post office just beside this bank. It was the first week of June. Even though it was morning, the sun was shining furiously. It was hot and humid, unlike Pune weather.

There was a large queue in front of the small window. About 20 people were waiting patiently for their turn. There were senior citizens, ladies as well as youngsters.

I was surprised to see this. I could not recollect when did I last visit the post office. So, I was just curious to know the reason. I searched for the youngest-looking guy. He was in jeans and tee, he had put on his wireless earbuds and probably was chatting on his iPhone.

The traditional Recurring Deposit (RD) syndrome

I barged into him. He said he comes here every month to invest in a recurring deposit (RD). I enquired with few others. Most of them were here for the same purpose.

Being a financial enthusiast, this was a shocking revelation for me. I knew the RD instrument but did not know that it is still so popular.

The RD return is barely 5.8%. This is not even good enough to beat the deadly inflation. I wondered, why the hell these guys must be investing in RD?

One question led to another. I was really concerned about their future goals, dreams, ambitions, and retirement plans. How can one invest in RD and expect to fulfil his dreams? It is mathematically just not possible.

Even with such a low rate of return, people seem to have a lot of faith in RD. I could not fathom this. I was puzzled about why people must be investing in RDs year after year.

Reasons why people invest in RD

I could figure out the following reasons:-

RD is the traditional investment option being followed by parents or elders in the family
It is safe and secure; the capital is protected.
Easy access to post offices/banks due to proximity to residence
Lack of financial literacy
Inadequate awareness about other suitable options
General fear about the stock market
Complete absence of trust and belief in the stock market ecosystem as a whole
The deep-rooted, die-hard perception that stock market investing is a gamble
The presumption that every stock market investment option is highly risky.

My mind started calculating. Even if the retail investor invested Rs. 10,000 per month in RD for the next 10 years; his accumulated wealth will be only Rs. 16,26,476/.

Considering the other safe options available, this return is insignificant. No one has ever become rich by investing in RDs. Though RD is safe, it does not have the lethal power to create wealth and accomplish your dreams.

The new beginning of SIP

The time has come to expand the horizon and look beyond your comfort zone. The most efficient and safe alternative investment option to RD is Systematic Investment Plan (SIP).

If you had invested the same Rs. 10,000 per month in the safest SIP fetching you a moderate return of 12% over 10 years; you would have accumulated a wealth of Rs. 23,23,000/-.

This SIP would have generated an additional wealth of Rs.7 Lakhs. Amount good enough to fulfil that dream foreign tour to Switzerland.

The sceptic in you may reason out that this investment is riskier than RD and hence not safe. For a fearful person, the tiny rope lying on the roadside also looks like a snake.

I do appreciate that investing in the stock market does have inherent risk. However, let me emphasize the fact that every stock market option need not be risky.

It is essential to understand that the stock market is an ocean. It has vast investment options to choose from. You can play with sharks and at the same time, you can collect hidden gems without losing your sleep.

Selecting an appropriate investment option is the key. It is completely your choice. Finally, what you get is what you choose.

Though SIP invests money in the stock market, it need not be risky at all. There are various SIP options available that give almost risk-free returns for long-term investments.

One can easily create wealth without taking unnecessary risks. There are safer heavens in stock markets as well.

Defensive investment through SIP is the success mantra for retail investors. The time has come to switch from traditional RD to new age SIP.