Investment Fundamentals
“I started investing in mutual funds last year via SIPs (Systematic Investment Plans) with the intention of funding my higher education. I invest around a third of my salary every month, irrespective of whether the market is performing well or not.”
Delhi-based communications professional Yumna Ahmad is only one of the 3.88 crores SIP account holders (as of May 31st) who’ve dedicatedly taken their first step towards building a good corpus via regular, systematic investing in mutual funds. 5 years back, in 2016, this figure stood at 1 crore.
Rome wasn’t built in a day, and certainly, building the financial future of your dreams cannot happen overnight as well. But with as low as Rs 500 (that’s less than your monthly premium Netflix subscription), you can take the first step today.
Simply put, SIP or Systematic Investment Plan is an investment method where you periodically set aside a specific amount to invest in mutual funds, instead of investing a major amount, or lump-sum together. This period can be monthly, weekly, or any time frame of your liking. But remember, this is a long-term investment route because SIPs need the magic of compounding to generate solid returns in the future.
Consider this. Say you invest Rs 500 per month for a period of 10 years. Assuming the rate of return to be at 12%, you’ve invested Rs 60,000 over this time period. As per the SIP calculator, you’ll have generated almost Rs 56,000 in returns.
Taking it a notch up, let’s say you invest Rs 5,000 per month for the same time (10 years). At 12% returns, you’ll end up earning more than Rs 5,00,000 in returns over the decade!
Why a long-term approach works in the market is because of the miracle of compounding, which is simply interest on interest, which results in cumulative returns being magnified immensely over time! You see, BSE Sensex has appreciated more than 9,000% since its inception and the NSE Nifty has grown by more than 1,000% since its start in 1992. Imagine the value of your investments, had you invested in the market via mutual funds at the very start!
But if you’re late to the party, fret not! The Sensex has appreciated more than 99% over the last 5 years, and with the markets hitting new highs this year, the growth of your investments is definitely on the cards!
Clearly, investor confidence in the SIP way of investment is growing by leaps and bounds, given that the AUM (Asset under management) jumped to an all-time high of Rs 4.67 lakh crore as of May 31, data from AMFI (Association of Mutual Funds of India) showed.
In fact, this growth has only been on a rise over the past five years, the systematic investment plan or SIP AUM has grown 30 percent annually, twice as fast as the growth in the overall mutual fund industry’s assets under management (AUM).
Nisreen Mamaji, a CFP by profession, advocates for SIPs very strongly. “SIP is a long-term investment route. Typically, if you continue to invest over a long period of time you get the advantage of rupee cost averaging, which means that the purchase price that you will pay for the units will be much lower than the average price of those units.
“In order for this to work in your favor, you should continue as it is, irrespective of the market because, at the end of the term, that’s the only surefire way to create the corpus for the goals that you have created. If you invest without a goal when you get tempted to stop it. But if you want to participate in the Indian growth story, then the only way is for you to continue to invest without seeing the short-term volatility. As an investor, you should be focusing on the long-term picture and continue to invest and continue to make the magic of power of compounding and rupee-cost averaging”, she signs off.
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