Mutual fund investment through the SIP route may provide investors a lot of benefits. SIPs provide rupee cost-averaging, flexible investment duration plans and compounding. They come up with daily, weekly, monthly, quarterly and half-yearly plans. They inculcate financial discipline in an investor to save a certain amount every earning cycle and help them achieve financial freedom. Through Rs 10,000 monthly investment, one may build a corpus of as high as Rs 3.52 crore. Know how.
SIP: At a time when the country’s top indexes- BSE Sensex and Nifty 50- have risen by 19.70 and 23.72 per cent, respectively, in the last one year, many investors want to ride the bull. But for the average investor, there are factors such as lack of time and inadequate knowledge of the stock market that stop them from investing heavily in stocks. So, a lot of new-age investors move to mutual funds, where a qualified fund manager invests their money in a bocquet of many stocks. Within mutual fund investors, there are a lot of investors who either don’t have a large lump sum to invest or can’t time the market to grow their money at a fast pace. Such investors prefer mutual fund investment through a Systematic Investment Plan (SIP).
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SIPs give the benefit of rupee cost averaging, where your fixed amount in a cycle helps you purchase fewer net asset value (NAV) units when the stock market is high and more units when the market is low. The SIP route doesn’t give you assurance of guaranteed returns, but it helps you negate market fluctuations to a great extent. One can start an SIP with a small amount of Rs 100.
The flexibility of investing daily, weekly, monthly, etc., in SIP makes one able to adjust investment to their earning cycle.
One of the major advantages of SIP investment is that it gives you the benefit of compounding, which means your returns at the end of a year become the principal for the next cycle. With the help of compounding, your monthly investment of 10000 can help you accumulate Rs 1 crore, Rs 1.9 crore, and Rs 3.5 crore in 20, 25, and 30 years, respectively, even if you manage to get 12 per cent annualised returns from your mutual fund investments. Before we move to calculations, know some of the benefits of SIP investment.
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Benefits of SIP Investment
Rupee cost averaging is a major advantage of investing through SIP.
Since the rate of NAV changes every day, you purchase the same NAV at different rates as per your investment cycle. E.g., if you have opted for a monthly SIP with a fixed investment date of the 5th of every month, the SIP rate will be different for every investment cycle. It means you will purchase more SIPs in a bearish market and fewer SIPs in a bullish market. It averages out costs in the long run and helps you negate market fluctuations to a great extent.
Flexibility in investing according to your earning cycle is another advantage of SIP investment. You can choose from daily, weekly, monthly, quarterly, or half-yearly SIP options. You can also stop SIPs whenever you want after informing your mutual fund house.
SIP investment provides compounding, so the longer you stay in investment, the faster your corpus grows. E.g., if you invest Rs 5,000 a month for 20, 25 and 30 years, and get 12 annualised return, you can build a corpus of Rs 50 lakh, 95 lakh, and 1.76 crore, respectively.
SIP investment can inculcate financial discipline in you. When you know that you have to invest a certain amount every month, you spend your monthly earnings according to that.
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How can a Rs 10000 investment help you create a huge corpus?
If you start with a Rs 10,000 investment today and get a 12 per cent annualised return, the Rs 1.20 lakh per annum investment can help you build a huge corpus of Rs 1 crore, Rs 1.9 crore and Rs 3.5 crore in 20, 25, and 30 years, respectively. Know calculations here-
- If you invest Rs 10000 a month for 20 years, your investment will be Rs 24 lakh, your long-term capital gains will be Rs 7591479 and your total returns will be Rs 99914479 (nearly Rs 1 crore).
- If you continue the same investment for five more years, i.e., for a total of 25 years, your investment will be Rs 30 lakh, long-term gains will be Rs 15976351, and the total returns will be Rs 18976351 (nearly Rs 1,90 crore).
- If you continue this investment for just five more years, your total returns will be nearly doubled. You will invest Rs 36 lakh in 30 years and get Rs 31699138 as capital gains, and your total returns will be Rs 35299138 (nearly Rs 3.53 crore).
