Should You Buy a Mercedes or SIP?

Mr. Santosh Iyer, Sales and Marketing head of Mercedes Benz India said that Rs.50,000 SIP if diverted towards the luxury car market, will explode the business. He further exclaimed, “The SIPs are our competitors. I tell my team if you are able to break that (SIP investment) cycle, then exponential growth is given.”

Prima facie, this seems to be a marketing gimmick. However, it also reflects the underlying fear about the changing investing behavior of Indian retail investors. Over the past few years, the retail investor has become wiser in his decision-making. He has learned a few precious lessons about life from the Covid pandemic. He has well understood how essential it is to save prudently. He is now well aware of the power of averaging provided by SIPs.

The common man on the street has become a dominant force today and he is now seen as a threat to MNC brands like Mercedes Benz. This is a great sign of changing India.

I take this comment as huge applause towards the efforts put in by the Association of Mutual Funds in India (AMFI) and mutual fund Asset Management Companies (AMCs) in educating retail investors about the power of SIP.

The AMFI data shows that the SIP contribution has increased from Rs. 43,921 Crores in FY 2016-17 to Rs. 1,24,566 Crores in FY 2021-22. The average monthly contribution of SIP in the past year is about Rs. 12,000 Crores. For an emerging market like India, this is an astonishingly high figure. Hence I am not at all surprised when Mercedes thinks that SIP is its competitor.

So, what should you do now?

Should you Buy a Mercedes or SIP?

Let me address this question in two different scenarios.

1. The First scenario is what will you achieve if you buy a Mercedes at the cost of SIP:-

• You will not have enough funds to take care of crucial risks like job loss. Do you think you are immune to job loss? The answer is no. The global economy is already in recession. Large companies like Google, Amazon, and Meta have already laid off thousands of employees. The recession may hit India anytime. The pink slip may not be too far. It is the risk always hanging on our heads like a naked sword. Will this Merc help you when you lose your job? The answer is still no. Will you feel happy having a Mercedes in the garage and not having a job in hand? The answer is no. I am not saying that tomorrow you will lose your job. However, at Defensive Investments, we always focus on risk. We are constantly on the lookout for what worst can happen to us. And the job loss is one such risk. So, are you prepared for that?

• The value of Merc will keep depreciating from the very next day.

• Your neighbor Sharmaji will envy you and you will feel happy about it.

• You will drive around in the town and show off your car to your friends and family members and seek appreciation from them.

• You will post nice pics on Facebook and Instagram of this possession with comments like, “Happy to inform all that I bought a Merc today …” and keep counting the likes. In turn, get further addicted to seeking appreciation from others.

• The next month, your wife’s best friend buys a Porsche and posts the pics. Your wife sulks in despair, envy, and agony. The joy of buying a Merc vanishes instantly.

2. The second scenario is what will you gain if you continue with your SIP:-

• You will have enough funds to take care of risks associated with job loss.

• You will create enough wealth to live a comfortable and happy life.

• You will achieve financial freedom and live your life on your own terms without constantly worrying about job loss.

• You will able to provide the best education to your children and fulfill your responsibility as a parent.

• You will be in a position to explore the experiences of life by traveling the globe.

• And most importantly, you will be able to retire rich, and happy.

I am in no way suggesting that you should never ever buy a Mercedes. My earnest effort here is only to make you understand your priorities and accordingly help you to act on them. If having a Mercedes is your life goal, then so be it. Go ahead and grab it.

However, if materialistic possession such as Mercedes Benz is your life goal, then there is a serious need to introspect about your life, look inwards and listen to the inner voice. It has been proven for ages that no materialistic possession can make you happy forever. Worldly wisdom lies in seeking inner satisfaction. It is all about feeling happy about yourself rather than seeking constant appreciation from others. Do not beg for this appreciation. It will not last forever.

I am sure you must have already read the tagline on our home page. It speaks volumes about this:-

“Like Warren, I had a considerable passion to get rich, not because I wanted Ferraris - I wanted independence. I desperately wanted it.” - Charlie Munger

Mercedes or SIP? The choice is yours.