If you invest a small amount every month in a good equity mutual fund scheme with discipline, it can make you a crorepati by the time you retire from your job. SIP (Systematic Investment Plan) in mutual funds is one such medium that gives common investors an opportunity to create big wealth in the long term.
A monthly SIP of just Rs 5,000, if invested in the right fund and you continue that investment till retirement, can create a fund of more than Rs 1 crore. Let’s understand how a small investment can create a large retirement corpus.
Why is SIP a wise investment option?
SIP is an investment method in which you invest a fixed amount every month, such as Rs 5,000. This reduces the impact of market fluctuations through cost averaging and the magic of compounding shows effect in the long run. This helps investors stay disciplined and build a large corpus gradually over time.
How much will a Rs 5,000 SIP fetch you till retirement?
If a person starts an SIP at the age of 30 and invests Rs 5,000 every month continuously till the age of 60, i.e. for a total of 30 years, then:
Total investment = Rs 5,000 × 12 months × 30 years = Rs 18 lakh
Assuming an average annual return of 15%, then
Resulting retirement fund = Rs 3.5 crore (approx.)
(Source: sbisecurities.in)
This figure is an example and assumes that the investment will continue for the entire 30 years and the returns will be compounded annually.
What to keep in mind while choosing an SIP fund?
Before starting an SIP, investors should keep these key points in mind:
Fund track record: What kind of returns has the fund given in the last 5, 10 or 15 years.
Fund manager credibility: Experience and performance of the fund manager.
Fund category: Large cap, mid cap, small cap or flexi cap – choose according to your risk appetite.
Asset under management (AUM): Be cautious of both very small and very large AUM.
Expense ratio: The lower the better – it directly affects your returns.
Also read: Your smallcap fund gave 100% returns. Here are 4 reasons that might be a warning sign
What to keep in mind during SIP?
SIP is a long-term journey, and it is important to keep some important things in mind:
Do not stop SIP in market decline: In a falling market, more units are available at cheaper NAV which is beneficial in the long run.
Do not stop investing midway: Discipline and consistency are the keys to the success of SIP.
Opt for step-up SIP: As income increases, increase the SIP amount so that the retirement corpus becomes bigger.
Set a goal: Linking SIP to a goal helps keep the investment focused.
Will you get the same SIP returns in future?
Investing in mutual funds is market-linked, and past returns are not a guarantee of future returns. Although many funds in India have given returns of 15% or more in the last 10, 15 and 20 years, there is no guarantee of similar returns in future.
That is why while investing in SIP, it is important to understand that it is a risky instrument, but the risk reduces and the returns increase if you stay in the long term.
Summing up…
An SIP of Rs 5,000 every month, with discipline, patience and the right fund selection, can create more than Rs 3.5 crore by retirement. If you start early and stick to it for a long time, mutual fund SIPs can be an effective way to create wealth. Always make an investment decision based on your goals, risk appetite and time horizon.