SEBI registered Investment advisor (RIA) with Registration number – INA 000000342.
Mutual Fund SIP- How SIP can create Wealth in Long Term?

How much I will get, if I start a Mutual Fund SIP of 1000?

Very often we think wealth creation is difficult. But if we follow some basic discipline, it is not that difficult.  Let me quote my own example.

My first daughter was born on 8th May. 1995. Seeing the first child, we were thrilled as any other parents. Soon after her birth, I started planning for her future.

Mutual fund SIPs were not popular at that time and were considered as risky investments. Bank deposits and postal deposits were the safe bet for a retail investor.

I selected the risky route and started a Mutual Fund SIP in June 1995. You know how much was the SIP amount? It was one thousand rupees!  Initial years, I was feeling this as a very high amount because of my low salary. I was working with a PSU at that time. In 2000, I joined private sector and salary increase was good and this SIP has become almost negligible amount. I continued the SIP.

Sensex was volatile from 2000 to 2012

During the market crash of 2000, I was bit tensed. I have seen the sensex crashing by 35% in February 2000 due to the Dot Com bubble. That slowdown continued till September 2001, when sensex reached around 2600 from the heights of 6150 in February. 2000. Then it was a steady growth till 2004. At that time the political instability at the centre has created problems and market was volatile. Again in 2006, due to global crash in metal prices, markets were volatile. But sensex reached the peak of 21000 in January. 2008.

Mutual Fund SIP

It was the time of Subprime crisis in US and the effect on India was also severe. Market crashed and reached to the low of 8160 in March. 2009. But the recovery was fast and it reached 21000 again in November 2010. Then the going was not good and with many corrections and recoveries, it is around 20000 now.

My Mutual Fund SIP is 17.5 years old now

My mutual fund SIP was continuing, because I have heard about the long term effect of Mutual Fund SIP, especially in volatile markets. Many of my friends stopped their SIPs in 2000 and again in 2008. But, I managed to continue the same.  You know the value of my SIP account now?  I have invested 2.12lakhs in these 212 months. The fund value now is around 21.71 Lakhs!!

Yes, that is the power of mutual fund SIP and long term investing.

I am switching 10 lakhs to a liquid fund now, because I may require the amount in the next few months for my daughter’s education. I am continuing my mutual fund SIP, because I am sure I can fund her marriage expenses also from this.

Where I was investing all these 212 months?

My SIP is in the evergreen fund HDFC Prudence Fund which is one of the oldest mutual funds in India. The fund was started in February 1994.

HDFC Prudence Fund

This is a balanced fund where the equity allocation will be within 40-75% while debt and money market instruments can be between 25-60%. As per the data available on Value Research Online, it is having around 75 % equity allocation and 25 % debt allocation now. The fund is managed by the star fund manager Mr. Prashant Jain along with Mr. Rakesh Vyas.  The fund is having an exposure of around 52% to Mid/small cap category now. The fund is benchmarked against the CRISIL balanced Index. The fund has given a return of 20% from the inception. (As on 23rd Jan. 2013)

There are better performers during this period and poor fellows too

I was comparing this fund with other funds in the market. There are many funds in the market which started performing better than this fund.  Though I invested in other funds, I am continuing this mutual fund SIP more from an academic interest.

Value of mutual fund SIP investment of 1000 from June 1995 to January 2013

Mutual Fund SIP Performance


What you can do?

Had I invested my money in HDFC Equity Fund, my accumulation would have been 30.58 Lakhs now. But if I had invested in LIC Nomura Equity Fund, my accumulation will be only 4.73 Lakhs!  We cannot always be with the topper fund.

The essence of mutual fund SIP lies in long term investing. Once you have a financial goal, which is more than 10 years, start a SIP in good performing equity mutual funds. Time will prove your decision correct. For short term goals, you can do SIP in MIPs, balanced funds or even debt mutual funds.  Mutual funds offer a basket of products as per your needs, which are also tax efficient.

Go for direct plan option in mutual funds

Now, you can invest in mutual fund SIPs in the Direct Plan option. If you invest so, without any agent, you will get higher NAV and better return. In the long run, it will make a huge difference. You can do the investment online through the website of the fund house. You can even switch your existing investments to the direct plan option to get better retuns.

A mutual fund SIP will help you in accumulating wealth. Start one Mutual Fund SIP this New Year another one after the salary hike. It will pay you in the long run.

 

26 Comments

  • Sreekanth Posted January 26, 2013 4:23 pm

    Good melvin

  • Anil Posted January 27, 2013 1:44 pm

    Really an eye opener for all the investor. Happy investing with MFs is the mantra

  • Jayakrishnan P Posted January 27, 2013 1:56 pm

    Nice sharing… Thanks

  • Manoj Posted January 28, 2013 6:13 am

    Excelent article sir. Thanks.

  • Srikant Bora Posted January 28, 2013 10:24 am

    Very Nice Eye Opener.It shows the Value of Patience in Long run.Keep it up…Thank you for the Valuable Information.

  • KURIKOSE KP Posted January 28, 2013 10:22 pm

    Dear sir,

    This is an excellent article, and teach you how discipline on wealth creation

  • Deepak Ghugardare Posted January 29, 2013 8:37 am

    Very nine sir. Can you please also guide us on GOLD ETF? What it is and how they play? Thanks

  • unnikrishnan Posted January 29, 2013 7:26 pm

    A real eye opener , Thanks Melvin

  • Rama Shanker Yadav Posted February 2, 2013 11:46 am

    Smart Financial Planning sir

  • Amit Choudhary Posted February 20, 2013 9:30 am

    Hi Melvin,

    The information shared on SIP is really informative.

    Thanks

  • atanu Posted April 14, 2013 3:00 pm

    Thanks for this article.
    My query are quite difference.
    1. Protecting one SIP by another invest-
    Suppose I want to SIP 1000/month(A) . Consider my salary is not high and job is not stable. But I want continue SIP ,if I lost my job in future.
    So I want investment(may be 5000/month SIP) (B) when my job is still remained.
    After 5 years getting a fund, take interest from this(B) investment . And then give my main(A) SIP(1000) from this ‘interest'(may be 300/month). So less headache for me(here 300/month).
    Are these correct for me or this type of investor?

    • Melvin Joseph Posted April 18, 2013 6:35 pm

      In that case, you don’t do this withdrawal and payment. In case of difficulty, discontinue the SIP and start again when you can manage.

  • Muthu Krishnan V Posted June 14, 2013 11:01 am

    add the returns from PPF/POMIS/NSC other “safe” investments available in 1995 for long term in your table and charts so as to see the impact 🙂

    • Melvin Joseph Posted June 25, 2013 5:51 pm

      Good. The rate of return in those cases will be 8-9% on the long term, while it is around 20% in SIPs.

  • Paresh Posted August 24, 2013 3:19 pm

    Hi Melvin,

    Good to know that you got good returns. I am also investing in mutual fund since Nov 2006. I started with Rs. 1000 and currently I am investing Rs. 26,000 monthly. I have decided to increase it every year as per my salary raise. But I am disappointed that till now I have invested Rs. 10,38,000 and its value is around Rs. 1,07,000.

    I just want to know that is it possible that in long term debt will give more return with respect to equity? I think Sensex is not performing well for last 3 years. I found that most of the funds are giving 3 to 4 % return. Some of my friends are doing investment in Bank FD and RD and they are getting 8 to 9% fixed return. Should I continue my SIP?

    In your case sensex reached from 3000 to 21000 but I don’t think it possible to reach till 35000 as people will do profit booking whenever it will cross 21000 to 22000 level.

    Thanks
    Paresh

  • R Sreerama murthy Posted August 7, 2014 10:32 pm

    Nice article sir. Sir i would like to invest 3000 monthly

    Suggest one good MF from me

  • R Sreerama murthy Posted August 7, 2014 10:34 pm

    Nice article sir. Sir i would like to invest 3000 monthly

    Suggest one good MF from me under sip.

    • Melvin Joseph Posted August 27, 2014 4:11 pm

      If you can invest for around 10 years or more, go for equity oriented funds like Birla Sunlife Frontline Equity fund, UTI opportunities Fund or ICICI Prudential Dynamic Fund. Go for Direct plan in these without any agents for better results.

  • Malav Desai Posted September 8, 2014 3:04 pm

    I need to invest 8000 per month through SIP for 10 years.
    Please suggest me a good fund, that will give me good returns after 10 years.

    Thanks

    • Melvin Joseph Posted September 30, 2014 6:24 pm

      I can recommend you a good fund only after understanding your profile, financial goals and duration to goals etc. Any recommendation in isolation will not be in your interest.

  • Umesh Posted September 14, 2014 1:35 pm

    Hi Melvin,
    What are “Direct Plans” ?

    • Melvin Joseph Posted September 30, 2014 6:21 pm

      Direct plans are mutual funds purchased without agents/brokers. The charges will be less in this option and so you will get better returns.

  • ajith Posted October 17, 2014 4:53 pm

    Really i didn’t think till today this can happen

    • Melvin Joseph Posted October 17, 2014 4:59 pm

      Yes, that is the power of equity investment in the long term.

  • R Swaminathan Posted January 11, 2017 2:22 pm

    I wish to cancel the renewal of my fd 6500000 and invest. I don’t need this money for may be next 5-10 years. I am 62 years old. pl suggest where I can move it in mutual fund

    • Melvin Joseph Posted January 11, 2017 3:32 pm

      Hi, I can suggest on this only after understanding your portfolio, other assets etc. Please contact me with all details . My email address is melvinjo123@gmail.com

Add Comment

Your email address will not be published. Required fields are marked *