SIP is a short form of - Systematic Investment Plan, where in an investor makes a periodic investment in mutual fund for appreciation of wealth. One of the new investor asked me this simple question –What returns can I expect investing in mutual funds with as low as Rs.1000. Here I tried to answer it in simple manner for every new investor’s benefit.
Mutual funds returns are dependent on three main factors-
- Appreciation of the fund you invested in
- Amount and frequency of SIP you invest in that fund
- How long you stay invested
Let me give an example-
Mr. X has Rs. 1000 as SIP at monthly frequency. He decides to invest in a fund, which historically shows average returns of say 25% for this case, which is possible and well proven historically for many funds. Considering the scenario remains the same and Mr. X is capable of taking the market risk, at the end of 10 years:
- Amount Invested by Mr X: Rs.1.2 Lacs
- Future value of SIP of Mr X: Rs. 5.22 Lacks
- Total gains : Rs. 4 Lacs
That means income of Mr. X has multiplied more than four times in just 10 years, which is very good returns scenario. Similarly, if Mr X considered investing Rs. 10000 in the same situation, would have yielded 52.2 Lacks in just ten years. Isn’t it lucrative? Of course, mutual funds and stocks are risk and rewards based investments, but given the facts, it is advisable that you should invest in mutual funds if you are capable to manage risk associated with market fluctuations.
Hope this article was helpful to all the new investors! Happy investing and Enjoy!
