mutual fund

How to create wealth through SIP in Mutual funds

17 Jun 2019 5 min read
Mutual Fund: How to create wealth through SIP in Mutual funds

SIPs (Systematic Investment Plans) of mutual funds have always been smart and hassle-free schemes in the Indian Financial Markets because of their solid performances and increasing investor’s interest.

Due to its disciplined and consistent allocation in mutual funds, whose fluctuating performance gets evened out by the uniform flow of the capital, SIPs are helping investors to create wealth even through the highs and lows of the market.

What are reasons for investing in SIPs to create wealth even when the market is volatile?

Even though SIPs (Systematic Investment Plans) have been gauged as the most efficient and convenient modes to invest in the current volatile markets, the mutual fund investors who started their SIPs some 1 to 2 years ago have not garnered very good profits. Many of them have earned even less than what a savings deposit account provides gaining relatively lower average returns in the year 2017.

Does that mean you should re-evaluate your decision for investments in SIP? No.

Although SIPs are considered as a great way to build wealth, at times when markets are down, investors get alarmed by the volatility in the market and then they tend to redeem their investments in SIPs too soon. Stopping SIP investment and redeeming them when the market is down is the worst thing an investor can do that might have a big impact on his portfolio and beat the whole intent of systematic investing. Sunil Subramaniam, CEO of Sundaram Mutual Fund points out that,

'SIP investors should not be worried about the daily movement of the market. It should be more of a wealth creation for future planning'

This is the reason for the investors to stick to their SIPs, even when markets turn volatile.

Let us comprehend this with the help of an example:

Suppose Mr. A invested in a SIP mutual fund scheme of Rs. 1000 per month from 1st January 2003. And he redeemed his SIP in the year October 2009 during the liquidity crunch. Mr. B also started the same SIP scheme and on the same date. But he is still continuing with his SIP.

Case

Total Amount Invested (Rs.)

Amount Redeemed (Rs.)

Mr. A

(If discontinued SIP after 7 years in October 2009)

84,000

1,82,000

Mr. B

(If SIP is continued until December 2013)

1,40,000

4,80,669

The above illustration is used as an example. Returns cited above are just for explaining the perception.

If you will compare the returns, you can observe that Mr. B has received the same returns as Mr. A, up until Mr. A exited, despite the volatility in the equity market for the last 5 years. Moreover, Mr. B also got the benefits from the power of compounding in the longer period of time yielding nearly Rs 3 lakhs as capital gains mainly on the account of compounding interest and higher market return rates during the upswing.

The main objective of the SIP investments is turning the market volatilities to the investor’s advantage. As Jeff Bezos once stated, 'Make difficult choices and be right!”

Therefore, instead of dashing to redeem your mutual fund - SIP investments during the unstable market conditions, stick for a longer duration all the while assessing them in 2 years or so.

How much wealth is created if I invest Rs. 10,000 per month in SIP Mutual Funds?

SIP is the simple process of investing a fixed amount in mutual funds at the regular time periods.

Before making any decision give significance and learn more about your portfolio diversity and your risk endurance and only then select the respective mutual fund - SIP that befits you. Proceeding for just 2 to 3 funds can help you to create a greater portfolio for your SIP investment.

Returns on Rs. 10,000 per month SIP

As per the past performances, mutual fund returns have been between 10 to 18%. The actual return may vary for each investor depending on his portfolio. Let's assume for this example that the returns on SIP for Rs. 10,000 per month is 12%

Here’s how much amount you can accumulate at the end of 5, 10, 15 and 20 years by investing Rs. 10,000 per month in SIP:

  • SIP of 5 years - Rs. 8.5 lakhs
  • SIP of 10 years - Rs. 23 lakhs
  • SIP of 15 years - Rs. 50 lakhs
  • SIP of 20 years - Rs. 96 lakhs

Now we will compare this with the actual amount invested over the years as follows:

  • Amount for 5 years - Rs. 6 lakhs
  • Amount for 10 years - Rs. 12 lakhs
  • Amount for 15 years - Rs. 18 lakhs
  • Amount for 20 years - Rs. 24 lakhs

You might have noticed that by investing SIP of Rs. 10,000 per month for 15 years, you are getting a return of Rs. 23 lakhs which is double the amount of what you are actually investing. These results show that investing in SIP can grow your wealth substantially over the years and the longer you invest the better results you can get.

SIP in equity mutual funds is also great for beating inflation while creating a lot of wealth as compared to other investments like PF, FDs, Stocks and other such portfolios.

CONCLUSION:

In short, SIP acts as a good mediocre for retail investors to create their wealth through equity mutual funds in a conservative and disciplined manner, without even severing the pockets of the investors.

Also read: How to start a SIP online in just 4 simple steps

Need Help with SIP Investments?

As a professional investment advisor, Afinoz helps investors and depositors to achieve their financial goals by helping them to create a targeted budgetary plan. So if you wish to secure yourself a sturdy financial plan that will explain:

1. How to invest

2. Where to invest

3. How much to invest

Don't know where to start?

Afinoz, an online financial marketplace offering investment products will provide you with the real-time SIP investment advice and services. It will also help you as a mutual fund advisor to get you the best performing Mutual Fund - SIPs according to your risk appetite. You can contact us for any investment advice at +91 - 8750959730 or mail us at info@afinoz.com.