What exactly constitutes a successful SIP investment in equity mutual funds?

An SIP provides good investment opportunities in a structured and time-bound way. However, many retail investors, including those who already have made investments in mutual funds through an SIP, often are confused about this investment method. Many may think of an SIP to be a mutual fund scheme or an investment product. Note that it is not a mutual fund scheme, instead, it is a route through which you can invest a predetermined small investible amount in any mutual fund scheme periodically. With the SIP mode, you can stagger your mutual fund investments over a time period and make the most out of the rupee cost-averaging feature. 

Most financial professionals do not advise investing a lumpsum amount in equity funds. Instead, they suggest you stagger your investments in mutual funds through the SIP mode over a time period. By using this strategy, you witness the market at all levels, which not just prevents you from timing your investments but also allows you to average your investment cost by purchasing more units during bearish markets. Also, this route is convenient if you are salaried as by using your monthly income, you can bit by bit invest in mutual funds through SIPs to form a huge corpus. 

Here’s a guide to mutual fund SIP and how using them you can invest in equity schemes to form wealth over a long time period to attain your long-term crucial financial goals. 

Start small, start early

Starting your mutual fund investment journey early allows you to allocate adequate time to your investments and their growth. The investment regularity offered by a mutual fund SIP clubbed with an early investment in an SIP generates sufficient returns on your mutual fund investments. 

Understand it with this example – 

2 pals in the same age bracket, X and Y, started investing in SIP mutual funds equally at same returns. However, as X started earlier than Y, their overall returns generated are higher. X started investing at the age of 25, an amount of Rs 10,000 every month via an SIP to get an annual return of 15 per cent. Y, in contrast, started investing at 35 years to earn an annual return of 15 per cent too. They both invested till they approached 60. Below is a table displaying how their portfolio looked like once they approached the age of 60. 

SIP amountRs 10,000 every monthRs 10,000 every month
Investment duration35 years25 years
Annual rate15 per cent15 per cent
Overall investmentRs 42 lakhRs 30 lakh
Portfolio size (15 per cent growth rate)Rs 14.68 croreRs 3.34 crore

As you can view from above, X earned nearly 4.68 times more than what Y earned just by starting 10 years earlier. Thus, it is important to begin investing early to maximise your mutual fund returns through the SIP mode. 

Enhance your investment periodically 

This is because the returns are linked directly to investment. The higher the investment, the higher would be your returns generated and vice versa. It is even more so in the case of the SIP mode wherein your returns get added to your initial capital to generate higher returns owing to the compounding effect. 

Set a long-term financial goal 

A mutual fund SIP is a prudent and the best-suited route to mitigate your long-term goals and objectives. It is because the returns you earn get accumulated until they mature and endow you with sufficient funding to meet your financial goals. 

Be smart, begin with your mutual fund SIP now

With the SIP mode of investment in a mutual fund, you can sustain the dynamic market condition, which can allow you to save a considerable amount for the future through proper planning and careful selection of mutual fund schemes. Also, ensure to remain invested in the market for a long time period to generate higher returns as mutual funds over the short term, particularly equity funds, are volatile in nature. However, if you stay invested in them for a long-term period, then they may generate inflation-beating returns and allow you to meet your long-term financial goals with ease.