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Highlights

  • According to investment experts, you should pursue your SIP for the long term, 10 to 20 years, regardless of market movement.
  • If a SIP is continued for a period of 15 to 20 years, then one can easily deduce an annualized cumulative return of 12%.

New Delhi: The basic idea behind carrying out a systematic investment plan (SIP) in an equity mutual fund (MF) is to create a large corpus through small periodic investments. Those who have patiently invested via SIP in MF programs over the past five years have already realized its wealth creation potential as their investments have more than doubled due to the current market recovery. According to investment experts, one should pursue his SIP for the long term, like 15 to 20 years, regardless of market movement.

“If a SIP is continued for a period of 15 to 20 years, then one can easily achieve a cumulative annualized return of 12% for the entire investment period,” says Suchismita Jena, a certified financial planner based in Bhubaneswar (CFP- CM). “One should never panic when the markets fall and stop their SIP, instead they should make a lump sum investment to get more units at a lower net asset value. This would help to increase their overall returns on MF investments,” said Mrs. Jena.

For example, if you invest a lump sum of Rs 4 lakh in a diversified capitalization program after the markets have seen a 10% correction and continue a monthly SIP of Rs 5,000 in the same fund for the next 10 years, then the value of your Rs 10 lakh investment (lump sum of Rs 4 lakh + Rs 6 lakh via SIP) over a 10 year period will reach over Rs 24 lakh at an expected CAGR of 12%.

Also, if you stay invested in the fund for the next 15 years, the same investment will reach Rs 1.32 crore assuming you get a 12% CAGR for all 25 years.

However, the corpus will be much larger if you continue SIP for the entire 25 year period after making a lump sum investment of Rs 4 lakh. In such a case, you can accumulate total wealth of Rs 1.80 crore (your lump sum investment will increase to Rs 85 lakh and your SIP investment will increase to Rs 95 lakh).


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