The problem with acronyms is that when you don’t understand what they actually stand for, you can mix them up with the wrong interpretation. Something similar is that case with SIPs. The term SIP has become so synonymous with mutual funds these days that several people mistake SIP and mutual funds to be one and the same thing. They are convinced that SIPs are an investment vehicle that will help them earn returns. What they fail to understand is that SIP is a way of investing in mutual funds. A Systematic Investment Plan is a method which you can use to invest small fixed amounts at periodic intervals (typically every month). It is not an investment scheme as misinterpreted by many.
The beauty of SIP investing is that you need not have a surplus amount of money in your savings account to get going. Also, once you start a SIP in mutual funds your job isn’t done. In fact, once you start investing you need to keep a track on the performance of all your mutual funds to determine whether it is profitable to continue investing or whether you wish to make any necessary changes.
Your monthly SIP should not remain stagnant, you need to ensure that you keep increasing the monthly SIP sum after every 12 months to grow your corpus and create wealth over the long term. Investing in mutual funds via SIP should allow investors to get closer to their financial goals and eventually help them accomplish these goals.
It is true that investing via SIP has made mutual funds popular among young investors but some mistake SIP to an investment scheme, forgetting the fact that it is just the means to invest and not an investment scheme itself. What happens is that investors who allow auto-debit forget the whole purpose of starting a SIP. Yes, SIP is ideal for one to ensure that they save and invest a fixed amount at regular intervals, but it is essential for them to understand that their SIP investments can never go fetch negative returns. The performance a mutual fund scheme depends on the performance of all the underlying assets. If the scheme hasn’t been a consistent underperformer, then one must immediately stop their SIP investments and switch to a better performing scheme.
The key to creating wealth is just not by investing in mutual funds via SIP, but to consistently track the performance of your fund and to compare it with other funds that fall in the same category. This will help investors evaluate and decide whether they must continue their SIPs or look for other options.
Grow your corpus with SIP
Here’s a simple example which can help you understand how SIPs can not only grow your corpus but might also help you surpass your financial goals –
Suppose you wish to save Rs. 12 lakhs over the course of 10 years to achieve a certain financial goal. If start a monthly SIP of Rs. 10,000 and continue investing this sum for 10 years you will have already achieved the desired corpus. Now if the scheme you invested in offered an average annual return of 12%, you would have earned returns worth Rs. 11,23,391. Now if you add your investment amount and the amount you earned through annual interest the total amount that you will earn at the end of your 10 year investment journey would be Rs. 23,23,391.
Now imagine the returns if you increased the monthly SIP sum by 10% every year. The following table shows the total amount that you will invest which Rs. 17,40,000. And keeping the same 12% annual interest example, you would have drawn an overall corpus of Rs. 31,45,356.
|Year||Monthly SIP sum||Annual investment||Total Invested Amount|
|1st||Rs. 10,000||Rs. 1,20,000||Rs. 1,20,000|
|2nd||Rs. 11,000||Rs. 1,32,000||Rs. 2,52,000|
|3rd||Rs. 12,000||Rs. 1,44,000||Rs. 3,96,000|
|4th||Rs. 13,000||Rs. 1,56,000||Rs. 5,52,000|
|5th||Rs. 14,000||Rs. 1,68,000||Rs. 7,20,000|
|6th||Rs. 15,000||Rs. 1,80,000||Rs. 9,00,000|
|7th||Rs. 16,000||Rs. 1,92,000||Rs. 10,92,000|
|8th||Rs. 17,000||Rs. 2,04,000||Rs. 12,96,000|
|9th||Rs. 18,000||Rs. 2,16,000||Rs. 15,12,000|
|10th||Rs. 19,000||Rs. 2,28,000||Rs. 17,40,000|