Two simple sets of data confirm the frenzy with which Indians are embracing mutual fund Systematic Investment Plans, or SIPs, in order to in their quest of inflation-beating returns. One, is the inflow through SIPs touched Rs 23,547 crore in August which is the 14th consecutive month of constant growth of this mode of investment. Two, the number of total folios touched 20.45 crore fuelled by 3.1% rise in August.
The key reason for SIP to have captured the imagination of the masses is that it is convenient and that it is an all-weather instrument and one can invest both when the market is up and when it is down since cost averaging is inbuilt into the structure.
SIP calculator: Journey begins at 25
But one thing is inviolable – one should begin early. Let’s take a simple example of an individual investing Rs 5,000 in mutual funds through the SIP route at the age of 25. Let’s assume he/she will continue to put in the same amount till the age of retirement ie, 60 years.
If someone begins at the age of 25, he/she will amass an amount of Rs 3,24,76,345. A nominal investment of Rs 21 lakh will fetch a return of 3,03,76,345. The other assumptions here is that the returns will be at 12% annually, not difficult for a long-term equity scheme to generate.
Journey begins at 30
Now let’s assume another individual begins investing the same amount from the age of 30 and continues till the same age. In this case the amount will be Rs 1,76,49,569, or a little more than half of what the first person generates.
Journey begins at 35
Now take a third person who begins from the age of 35 and has only 25 years to invest. This individual will get only Rs 94,88,175 at the age of 60. The third person gets only about 28% — or significantly less than one-third of what the first person gets.
This sets the timeless advice in the mutual fund world – begin early, since the early bird always gets the big worms.
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