Systematic Investment Plans (SIPs) were introduced in India almost 20 years back by Franklin Templeton. Since then, SIPs in good funds have generated excellent returns and created wealth for the investors. SIPs offer a simple and disciplined way to accumulate wealth over the long term. Mutual Fund SIPs work pretty much like bank recurring deposits, except they generate superior risk adjusted returns compared to recurring deposits. There are a number of benefits of retirement planning through Mutual funds Systematic Investment Plans (SIP):-
In this series of articles, we will look at how SIPs have created long term wealth for the investors in the last 15 years. In this article, we will discuss how SIPs in some large cap and diversified equity fund, have created wealth for their investors. For our discussion, we have selected 7 large cap and diversified equity funds that have given good returns in the last 15 years. This is, by no means, a comprehensive list of all the funds that gave good returns in the last 15 years. This just an illustration of how long term investments in SIPs, have created wealth for investors. Each of the funds in our selection has given SIP returns of nearly 20% annualized. Since SIP investments are made over a period of time, the method of calculating SIP returns is different from that of Lump Sum investments. SIP returns are calculated by a methodology called XIRR, which is a variant of Internal Rate of Return (IRR). XIRR is similar to IRR, except XIRR can calculate returns on investments that are not necessarily strictly periodic.
For our examples, we have assumed a monthly SIP of Rs 3000 only, made on first working day of every month in the funds that we will discuss. Let us assume the SIP start date was 15 years back in May 1999. Over this period, the investor would have invested Rs 5.43 lakhs in SIPs of the following mutual funds. Let us see how much wealth would they have accumulated, by investing in the following funds.
If you had started a monthly SIP of Rs 3000 in ICICI Prudential Top 100 fund back in May 1999, by now you would have accumulated nearly Rs 24 lakhs corpus, with an investment of only Rs 5.4 lakhs. You would have accumulated corpus of Rs 10 lakhs by the end of 2006, a corpus of Rs 15 lakhs by the end of 2007 and despite the severe financial crisis, a corpus of Rs 20 lakhs by the end of 2012. Over the 15 year period the compounded annual returns on your SIP investment in this fund would be 17.8%.
If you had started a monthly SIP of Rs 3000 only in SBI Magnum Multiplier Plus fund back in May 1999, by now you would have accumulated a corpus of over Rs 24 lakhs, with an investment of only Rs 5.4 lakhs. You would have accumulated corpus of Rs 10 lakhs by the end of 2006, a corpus of Rs 15 lakhs by the end of 2007 and a corpus of Rs 20 lakhs by the end of 2010. Over the 15 year period the compounded annual returns on your SIP investment in this fund would be 18.1%.
If you had started a monthly SIP of Rs 3000 only in Franklin India Bluechip fund back in May 1999, by now you would have accumulated a corpus of nearly Rs 26 lakhs, with an investment of only Rs 5.4 lakhs. You would have accumulated corpus of Rs 10 lakhs by the end of 2006, a corpus of over Rs 15 lakhs by the end of 2007 and despite the severe financial crisis, a corpus of Rs 20 lakhs by the end of 2010. Over the 15 year period the compounded annual returns on your SIP investment in this fund would be 18.7%.
If you had started a monthly SIP of Rs 3000 only in the Birla Sun Life Equity fund back in May 1999, by now you would have accumulated a corpus of over Rs 28 lakhs, with an investment of only Rs 5.4 lakhs. You would have accumulated corpus of Rs 10 lakhs by the end of 2006, a corpus of over Rs 15 lakhs by the end of 2007 and despite the severe financial crisis, a corpus of Rs 20 lakhs around the end of 2009. Over the 15 year period the compounded annual returns on your SIP investment in this fund would be 20%.
If you had started a monthly SIP of Rs 3000 only in the Franklin India Prima Plus fund back in May 1999, by now you would have accumulated a corpus of nearly Rs 31 lakhs, with an investment of only Rs 5.4 lakhs. You would have accumulated corpus of Rs 10 lakhs by the end of 2006, a corpus of over Rs 15 lakhs by the end of 2007 and despite the severe financial crisis, a corpus of Rs 20 lakhs around the end of 2009. Your corpus would have crossed the Rs 25 lakhs mark by the end of 2012. Over the 15 year period the compounded annual returns on your SIP investment in this fund would be 21%.
If you had started a monthly SIP of Rs 3000 only in the HDFC top 200 fund back in May 1999, by now you would have accumulated a corpus of nearly Rs 35 lakhs, with an investment of only Rs 5.4 lakhs. You would have accumulated corpus of Rs 10 lakhs by the end of 2006, a corpus of nearly Rs 20 lakhs by the end of 2007. Despite the severe financial crisis, your corpus would have crossed the Rs 30 lakh mark by the end of 2010. Over the 15 year period the compounded annual returns on your SIP investment in this fund would be 22%.
If you had started a monthly SIP of Rs 3000 only in the HDFC Equity fund back in May 1999, by now you would have accumulated a corpus of nearly Rs 38 lakhs, with an investment of only Rs 5.4 lakhs. You would have accumulated corpus of nearly Rs 10 lakhs by the end of 2005, a corpus of nearly Rs 15 lakhs by the end of 2006 and a corpus of Rs 20 lakhs by the end of 2007. Despite the severe financial crisis, your corpus would have hit the Rs 25 lakhs mark by the end of 2009 and crossed Rs 30 lakhs by the end of 2010. Over the 15 year period the compounded annual returns on your SIP investment in this fund would be 23%.
Conclusion
In this article, we have seen how SIPs in large cap and diversified equity funds over the long term have created wealth for the investors. SIPs benefit from the power of compounding, and therefore the earlier we start our SIP, the greater is the potential for wealth creation. However, it is important to select a good fund for our SIPs. Your financial advisers can help you select a good fund that is suitable for your risk profile. As your risk profile changes over time, you should re-balance your portfolio to align with your risk profile. Tomorrow, we will discuss how SIPs in small and midcap funds have created wealth for the investors.
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