Time and Again we try keeping every one aware on the importance of Sip Investment in equity market, its working and benefit.
Nowadays we come across many new Investors who have either No Experience or have very Bad Experience in equity market. When we try explaining about the Importance of SIP. They just say that they do not want to park their money in Equity , it is very risky and they are okay with Fixed Deposit.
I recently got an opportunity to interact with an U.S Citizen, located inDallas
On the same week I met two Indian Investor. One being a Doctor by Profession & other was a salaried person. Both the them were so skeptical on equity . Infact one Investor told me that he has not made any money even in SIP route, so he avoids equity investment.
When I asked, how long you have been doing investment via Sip route and how many funds he has been investing so far.
His replied 2 Mutual funds (Sector Specific fund) and for a period of 6 months. The other Investor (Doctor) who had investment in Fixed Deposit to the tune of 85 lacs was yielding a return of 6%, which was far less than inflation. He said his friends have lost enough money in shares & Mutual fund, so he is not taking any risk of Investing money in Equity .
What I could understand after meeting both the investor is one thing. Inspite of Media & AMC taking so much steps to create awareness among the public about the equity investment. The basic awareness level is very poor. Moreover Investor looses their patience very easily and has very short term view for their investments. That's why In India "FII make more money than Domestic Investor".
I could not digest their views on equity market and started back testing equity performance on Different parameters. To make them realize that Equity is one of the Best asset class, that Investor should have in their kitty. While Analyzing, I found out one interesting facts about Equity Market and thought it would share it with every one.
Please check the below tables to find out the Importance of Monthly Investment in equity and Power of Compounding
Extending this analysis over a 15- and 25-year period on a hypothetical Basis (assuming the same Annualised returns of 24.21%) would result in a terminal value of over Rs 13.87 lakhs (principal of Rs 1.80 lakhs) and Rs 1.25 cr (principal of Rs 3 lakhs) over these periods respectively.
Nowadays we come across many new Investors who have either No Experience or have very Bad Experience in equity market. When we try explaining about the Importance of SIP. They just say that they do not want to park their money in Equity , it is very risky and they are okay with Fixed Deposit.
I recently got an opportunity to interact with an U.S Citizen, located in
On the same week I met two Indian Investor. One being a Doctor by Profession & other was a salaried person. Both the them were so skeptical on equity . Infact one Investor told me that he has not made any money even in SIP route, so he avoids equity investment.
When I asked, how long you have been doing investment via Sip route and how many funds he has been investing so far.
His replied 2 Mutual funds (Sector Specific fund) and for a period of 6 months. The other Investor (Doctor) who had investment in Fixed Deposit to the tune of 85 lacs was yielding a return of 6%, which was far less than inflation. He said his friends have lost enough money in shares & Mutual fund, so he is not taking any risk of Investing money in Equity .
What I could understand after meeting both the investor is one thing. Inspite of Media & AMC taking so much steps to create awareness among the public about the equity investment. The basic awareness level is very poor. Moreover Investor looses their patience very easily and has very short term view for their investments. That's why In India "FII make more money than Domestic Investor".
I could not digest their views on equity market and started back testing equity performance on Different parameters. To make them realize that Equity is one of the Best asset class, that Investor should have in their kitty. While Analyzing, I found out one interesting facts about Equity Market and thought it would share it with every one.
Please check the below tables to find out the Importance of Monthly Investment in equity and Power of Compounding
Table 1: Illustrates the benefits of SIPs over the long term. If an investor had invested Rs 1,000 every month through a SIP in a Diversified Equity Fund(I have taken example of HDFC top 200 Fund )
Period | Total Amount Invested | Value as of 30th Nov 2011 | Annualised SIP Returns (%) |
10 Years | 1,20,000 | 4,30,150 | 24.21% |
Continuing SIP investments in a bear phase delivers superior results
A big mistake that investors make is exiting SIP investments when markets start falling which can impact portfolio returns sizeable. Let's assume an investor discontinued his SIP in December 2008 (during the credit cum liquidity crisis), the returns would have been less (24%) vis-à-vis if the SIP had been continued (24.21%) (See Table 2). In value terms, the difference of Rs 36,000 invested post December 30, 2008 would have returned Rs 2,34,456 mainly on account of power of compounding and higher market returns during the upturn.
Table 2 Continuing SIP investment across market cycles
SIP of Rs 1,000 per month in a Diversified Equity Scheme from January 1, 2002
Period | Amount Invested | Redemption Amount | Annualised Returns |
IF SIP Discontinued after 7 years on Dec 30 2008 | 84000 | 1,95,694 | 23.89% |
IF Sip Continued till Nov 2011 | 120000 | 4,30,150 | 24.21 |
Difference | 36000 | 2,34,456 |
In a nutshell, SIPs are a good medium for retail investors to create wealth via equity mutual funds in a disciplined manner owing to its key advantages and simplicity.
Bonus Tip : All market-linked investments go through ups and downs. To create wealth over the long run, a disciplined, far-sighted approach is critical and wins over a short-term one. For those investing in mutual funds, Systematic Investment Plans (SIPs) offer to create long term wealth. SIPs offer a simple and disciplined way to generate higher risk adjusted returns and meet the desired goals. The concept is similar to recurring bank deposits wherein investors contribute a fixed sum of money at regular intervals.
- Article by Nishith.B , Financial Doctor
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