Mutual funds: Why are SIPs considered a good way to accumulate wealth over a long tenure?

The most convenient way to invest in mutual funds is to do so via systematic investment plans (SIPs). By investing 10,000 consistently over a period of 20 years, you accumulate one crore if the investment gives you an annualised return of 12%.

Vimal Chander Joshi
Published20 Sep 2024, 09:43 AM IST
When you invest via SIPs, you get to buy units at different price points which help you maximise your gains at the time of redemption.
When you invest via SIPs, you get to buy units at different price points which help you maximise your gains at the time of redemption.

If you have started making investments in mutual funds, you will be tempted to invest in lumpsum. Most wealth advisors, meanwhile, would tell you to go slow and go systematically.

This is simply because it is quite convenient to invest in mutual funds via systematic investment plans (SIPs).

Also Read | What are hybrid funds and how are they different from equity and debt funds?

For the past 14 consecutive months, overall SIP inflow has been rising month after month, reveals the data released by the Association of Mutual Funds in India (AMFI). As on Aug 31, mutual fund SIP accounts stood at 9.61 crore and the total amount collected through SIP during August 2024 was 23,547 crore.

Month                         SIP ( crore)
April                               20,371
May                              20,904
June                          21,262
July                               23,332
Aug                             23,547

(Source: AMFI)

Wealth creation over time

Have you ever wondered how much wealth you stand to create if you were consistent in investing 10,000 over a long period of time.

A humble investment of 10,000 over 5 years can grow to 8.25 lakh when it rises at the rate of 12 percent per annum. Over a period of 10 years, the same consistent investment of 10,000 swells to 12 lakh.

Over a 15-year period, you can accumulate 50.46 lakh by investing 18 lakh, and over 20 years, this becomes almost one crore while the total investment is 24 lakh only.

Tenure                                   Investment Corpus
5 years                                      6 lakh 8.25 lakh
10 years                                  12 lakh23.23 lakh
15 years                                     18 lakh50.46 lakh
20 years                                   24 lakh99.9 lakh

So, as one can see, the growing faith in the SIPs is not a coincidence or a fluke. It, in fact, stems from a range of benefits offered by the SIPs. Here we share some of the key benefits of investing in mutual funds via systematic investment plans (SIPs):

Key advantages of investing in mutual funds via SIPs:

1. Rupee cost averaging: When you invest via SIPs, you get to buy units at different price points which help you maximise your gains at the time of redemption. Conversely, when you buy units at a high price, the probability of maximising the value at the time of redemption may fall if the units were bought at the time of bull run.

2. Convenient to invest: Investing in mutual funds via SIPs is far more convenient than investing in lumpsum. You can simply put your account on an auto invest so that a regular investment of (say) 500 or 1,000 is made every week/ month/ quarter.

Also Read | Mutual Funds: 5 common mistakes you must avoid while investing in SIPs

3. Easy to cough up small units: When you invest in the small units of a mutual fund, it is considered far more convenient instead of investing huge sums in one instalments. For example, investing 10,000 a month is far easier than investing 1.2 lakh at the start of the year. 

4. Investing discipline: Accumulating large sums of money requires discipline. Merely by being disciplined, you can create a huge corpus so long as you do it over a long period of time.

Note: This story is for informational purposes only. Please speak to a SEBI-registered investment advisor before making any investment related decision.

 

 

Catch all theBudget News,Business News, Mutual Funds news,Breaking NewsEvents andLatest News Updates on Live Mint. Download TheMint News App to get Daily Market Updates.

MoreLess
First Published:20 Sep 2024, 09:43 AM IST
Business NewsMutual FundsMutual funds: Why are SIPs considered a good way to accumulate wealth over a long tenure?

Get Instant Loan up to ₹10 Lakh!

  • Employment Type

    Most Active Stocks

    Tata Steel share price

    159.00
    03:59 PM | 9 OCT 2024
    -0.55 (-0.34%)

    Indian Oil Corporation share price

    164.75
    03:58 PM | 9 OCT 2024
    0.35 (0.21%)

    Zee Entertainment Enterprises share price

    128.90
    03:58 PM | 9 OCT 2024
    2.1 (1.66%)

    Ashok Leyland share price

    222.05
    03:59 PM | 9 OCT 2024
    -0.45 (-0.2%)
    More Active Stocks

    Market Snapshot

    • Top Gainers
    • Top Losers
    • 52 Week High

    Divis Laboratories share price

    5,972.90
    03:29 PM | 9 OCT 2024
    425.9 (7.68%)

    Lloyds Metals & Energy share price

    982.00
    03:29 PM | 9 OCT 2024
    52.2 (5.61%)

    Cipla share price

    1,681.05
    03:48 PM | 9 OCT 2024
    40.45 (2.47%)

    Infosys share price

    1,953.90
    03:50 PM | 9 OCT 2024
    5.4 (0.28%)
    More from 52 Week High

    Bank Of Maharashtra share price

    54.79
    03:56 PM | 9 OCT 2024
    -2.22 (-3.89%)

    Vodafone Idea share price

    9.19
    03:58 PM | 9 OCT 2024
    -0.31 (-3.26%)

    ITC share price

    491.80
    03:55 PM | 9 OCT 2024
    -16.1 (-3.17%)

    Tata Communications share price

    1,950.15
    03:52 PM | 9 OCT 2024
    -54.95 (-2.74%)
    More from Top Losers

    Gujarat Ambuja Exports share price

    142.45
    03:59 PM | 9 OCT 2024
    12 (9.2%)

    RITES share price

    324.60
    03:56 PM | 9 OCT 2024
    24 (7.98%)

    Divis Laboratories share price

    5,972.90
    03:29 PM | 9 OCT 2024
    425.9 (7.68%)

    Torrent Power share price

    1,935.20
    03:52 PM | 9 OCT 2024
    118.05 (6.5%)
    More from Top Gainers

    Recommended For You

      More Recommendations

      Gold Prices

      • 24K
      • 22K
      Bangalore
      77,455.000.00
      Chennai
      77,461.000.00
      Delhi
      77,613.000.00
      Kolkata
      77,465.000.00

      Fuel Price

      • Petrol
      • Diesel
      Bangalore
      102.86/L0.00
      Chennai
      100.85/L0.10
      Kolkata
      104.95/L0.00
      New Delhi
      94.72/L0.00

      Popular in Mutual Funds

        HomeMarketsPremiumInstant LoanMint Shorts