How to become a crorepati by investing in Mutual Fund SIP for a long term?
SIP basically means Systematic Investment Plan that allows an investor to invest a fixed amount at regular intervals (usually monthly or quarterly) in a particular mutual fund scheme for a period of time (it depends on you for how much time period you want to remain invested by paying monthly or quarterly). However, in a lump sum mutual fund investment scheme, you only make a one-time investment of a large amount in any of the mutual funds.
Now the question which may arise in mind is why one should use SIP? Making money in the stock market has never been an easy task, as the stock market never moves in one direction. Suppose if you were to invest Rs. 60000 in a mutual fund on lump sum basis & you have a doubt about the market conditions (as the market is not stable) and expecting a downward movement, in that case, you may think of postponing the plan of investing.
The second case may be that you are very optimistic about the market condition and may invest the entire Rs. 60000. SIP puts an end to all these market predictions and helps you to invest regularly without fighting the market conditions. With SIP mode you can invest the same Rs.60000 divided into Rs. 5000 per month for 12 months. SIP helps you to average out your purchase cost, i.e. it invest the monthly amount of Rs. 5000 at the different market condition, helping you to average out the purchase cost of units & maximize the returns over time.
In the above paragraph, we got to know, what exactly a Mutual fund SIP means. Now the question is how we can create wealth with mutual fund SIP? To understand this let us consider an example: Suppose You have Rs. 5000 spare amount every month to invest in & decided to invest on SIP basis in an equity mutual fund scheme (say for example in Aditya Birla Pure Value Fund) for 15 years expecting a 15% annual return. We are simply assuming 15% return but it may be much more or less depending on the stock market conditions in India over the incoming years. The amount you will receive after 15 years will be approximately around Rs. 3300000 (33 lacs) (with an investment of 5000*12 months*15 years= Rs. 900000 (9 lacs)).
Similarly, if you invest the same amount at the same rate of annual return for 25 years the amount you will get after 25 years will be around 1.6 Crore (with an investment of Rs. 5000*12months*25 years=1500000). You can check out these returns with various other parameters on this SIP calculator. Above instance clearly indicate that higher is the time period, higher will be the returns. You are not required to be rich to create wealth; all you need is to start as early as possible during your lifetime.
Mutual fund SIP starts as low as with Rs. 500. There are various mutual funds schemes available in India today to invest in. You can find the top-ranked mutual fund by going to this link > http://www.moneycontrol.com/mutual-funds/top-rated-funds. The most important benefit one gets with equity mutual fund is the Power of Compounding. Compounding refers to reinvestment of earning at the same rate of return to constantly grow the principal amount, year after year.
So, if you are a first-time investor and not sure about your investment plans, the SIP can be the best option for you. However this is to be noted that mutual fund investments are subject to market risk, i.e. they move according to the stock market, however, if we see the past records of returns on Sensex, it has almost given a return of around 1300% in 25 years & around 75% in last 5 years. All you need is stick to your investment over a period of time to get the maximum benefit out of the market.
If one is invested for a short period say a year, he may not get the benefits as much as the investor who is invested for a longer horizon as the longer horizon gives the power of compounding income. Start as early as possible & have patience, this is the key to wealth building. You can also read our other articles on
1. What to do to start an SIP?
2. Which scheme of mutual fund should I invest in?
Written by: Yogesh Lohia, senior writer at sharemarkethow.com.