Mutual Fund SIP has become one of the favourite ways of investments for mutual funds India investors. SIPs offer a simple and disciplined way to accumulate savings over the long term. There are a number of advantages of investing through SIP Mutual fund for meeting your long term financial goals.

  • One of the main advantages of investing through SIP is that it makes disciplined investing convenient. By submitting an auto debit mandate, the SIP amount gets debited from your bank account automatically on the SIP date chosen by you and get invested in the mutual fund schemes of your choice. Post the auto debit, the units are allotted based on the mutual fund NAV on the date of debit.

 

  • The other big advantage of SIP is that, it makes market timing irrelevant. As you invest at regular intervals, you are invested both at the high and the low points of the market. SIP investment works well in volatile markets as it averages the acquisition cost, known as NAV.

 

  • Mutual Funds are very flexible investment option. There are no restrictions and penalties on regular SIP payments and redemption unlike some other investments. For example, there is no penalty if your SIP investment amount is not debited from your bank account due to any reason. Having said that, you must endeavour to keep sufficient balance for the SIP auto-debit.
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  • Further, if you are investing in a mutual fund SIP, you can redeem your units partially or wholly at any point of time. Equity mutual fund schemes usually have exit load periods (e.g. 12 months or so). If you redeem your units within the exit load period, a penalty on the SIP investment value will be charged

 

  • SIP investment can be started with an amount as small as Rs 500. Some AMCs even allows Rs 100 as the minimum amount to start your SIP.

 

  • And the biggest advantage of a mutual fund SIP plans is that, it can create wealth with relatively small regular investments over a long investment horizon without pinching the pocket. The table below shows a scenario analysis of the corpus built through SIP mutual fund over various time periods of investments at various return rates, with a monthly SIP investment of Rs. 5000/-
ReturnsInvestment Tenure
5 years10 years15 years20 years25 years30 years
12%₹ 4,08,348₹ 11,50,193₹ 24,97,901₹ 49,46,277₹ 93,94,233₹ 1,74,74,821
15%₹ 4,42,873₹ 13,76,085₹ 33,42,534₹ 74,86,197₹ 1,62,17,648₹ 3,46,16,398
17%₹ 4,67,906₹ 15,56,130₹ 40,87,050₹ 99,73,295₹ 2,36,63,131₹ 5,55,02,041
20%₹ 5,08,791₹ 18,80,476₹ 55,78,500₹ 1,55,48,259₹ 4,24,26,434₹ 11,48,89,189
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As you can see in the above chart, the power of compounding through SIP mutual fund over a long investment period is indeed magical.

(The above table shows the accumulated corpus of monthly SIP of Rs 5,000 over period of 5, 10, 15, 20, 25 and 30 years at different assumed rate of returns ranging between 12 – 20%)

 

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