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.
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
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.