Poison SIP

I wanted to save tax, for first time in my life my salary was good enough to be taxed. I was working with a business newspaper, but had no clue where to invest the little that I could afford so that it solves the dual purpose of tax-saving and investment. By then, I had not heard of the term financial advisors, but all I knew was people who called themselves LIC agents and used to sell every investment product they could get hand of and which could earn commissions.
I was never sure if they could give you prudent investment advice, however, I was also aware of the fact that they knew more than me. So, when this neighbor of mine approached me with this mutual fund scheme, which would help me both in tax saving as well as generating good return, I was excited -- excited because it would be my first investment.
The name of the fund also promised a lot and induced me into putting money in the scheme. However, I did not have a large amount with me to put it at one go and then for the rest of the three year see my money growing in leaps and bound – then I didn’t think of anything called economic slowdown even touching Indian shores. My advisor-cum-friendly-neighbour suggested me to go for the systematic investment plan (SIP), through which you put a small monthly amount in a mutual fund for three years and claim deduction on it every year for the next three years. I found the SIP model of my liking and gave it a nod.
It’s almost two years since my first investment and now I am aware of a few things about tax savings, mutual funds and insurance. So, I am here to do a post-mortem of my first investment decisions.
To begin with, the choice of the fund house (a very big name not just in mutual fund industry but in so many other sectors), with a retrospective view, was wrong. Big name alone doesn’t guarantee you good return, though you would be relatively more confident that by the end of the three-year tenure, you will get your principal back if not a huge return on it. The scheme turned out to be below average in terms of return, while many other tax-saving schemes from equally big stables, are doing much better. In retrospect, I think a more conservative brand name would have been a better deal for me in this case as is evident from their two-year return.
Today, my investment is worth 98 per cent of my principal amount. While the funds less illustrious rivals have managed to keep it just above 100 per cent. So, I am still in negative zone in less than a year from now my first SIP would be ready for maturity. I would be happy if I managed to take my principal amount back home.
That was the performance part. Now, the strategic mistake that I made. Going for SIP in tax-saving schemes means your investment would be locked up for six year instead of three. The reason is that tax-saving schemes have a lock-in of three years and in systematic investment plan, each of your SIP amount is locked for three years. That means you can withdraw only the first SIP amount after three years. It also means your last SIP could be retrieved only after 6 years since you start investing.
I don’t know how the market would behave in the next four years, but I am sure my money would be at its mercy till then.