This is the most asked question you might have heard from the Investors, especially in this market correction. The Market is not doing good from the last one year, and as a result, SIPs in Mutual funds giving negative returns.
However, if you keep investing in them for a very long term, you can create a lot of wealth for you.
Why do we say so?
That’s because it’s well-proven; if you look at the historical SIP returns for the long term, you will get the answer.
For the same, we looked at the rolling returns of Multi-cap funds for 15 years starting from 2000.
What did we find?
If someone started investing on any given day in these 19 years and stayed invested for at least 15 years, you will find that returns have been in the range of 12 to 20%.
However, for the calculation, it is wise to take an average Conservative return of 12% per annum.
So, if you consider the same average annual returns, and start investing a monthly SIP of Rs 10,000 per month, see what it can do over the years:
These are some big numbers … Isn’t it?. At least if you go for more than 25 years.
This number looks more exciting when you compare it with the amount of investment you made. You can observe that by investing Rs 10,000 per month via SIPs for 15 years, you are actually investing approximately 18 lakhs. But after 15 years, you would have accumulated around 49 lakhs. It is the double of the amount you originally invested.
Now, Think! How much wealth you would have generated if you start your saving early at the age of 25-30 years and continue it till the age of 60 years.
Your monthly investment of Rs 10,000 in equity funds can grow into Rs 3.49 crore in 30 years!. That’s how the power of compounding work best for you.
These calculations taken above were done on the assumption of 12 % average annual returns. But in reality, Market don’t move in straight lines. Hence, returns also fluctuate and don’t give you the same returns…..
Hence, to give you the gist of the concept, we are taking below a real example of funds performance, if you had started investing in them Rs 10,000 a monthly SIP in some of the old and good funds years back.
Please note: These funds are just for the calculation, don’t assume that we are recommending them for the investment
Starting from August 2000, if you had invested Rs 15,000 per month in Aditya Birla sun life Equity fund, Franklin India Equity Fund, and HDFC Equity fund, your total investment in each would have been about 34.3 lakh (up to August 2019)
And the value of your investment would be ..
- Rs 2.43 Cr in Aditya Birla Sun Life Equity Fund
- Rs 2.3 Cr in Franklin India Equity Fund
- Rs 2.7 Cr in HDFC Equity Fund
And these numbers are achieved in 19 years. Think what it would have been if invested for 30 years!
However, we often think it’s difficult to get Rich. But the past fund performance in the above example tells you another story.
Now, if you are wondering that these number still possible if we start with the less amount?
Then the answer is “Yes.”
There is absolutely no need to keep investing the same decided amount of Rs 10,000 or 15,000 per month for 20-30 years. Your income would increase every year. So your investment should increase too. Isn’t it? Now a Rs 15, 000 per month investment for 19 years resulted in Rs 2.43 -2.7Cr.
Just imagine what would have happened if you decided to go for step-up SIP? A SIP that increases every year in line with your income. So for example, it can be Rs 10,000 in the first year followed by SIP of Rs 15,000 per month next year, SIP of Rs 20,000 in 3rd year and so on (i.e., increase it by Rs 5000 every year)
If you plan to start a SIP, remember that you can create “More” wealth if you can increase the SIP amount every year.
For Instance: If you start a SIP of Rs 8000 per month in equity funds and increase it by 20% every year for the next 20 years(Assumption of 12% average return). Do you know how much wealth you would have generated? It would be a whopping amount of 1.73 cr.
So, do you still think that SIP can not make you rich?