Simplification and ease of doing is the bedrock of financial planning. It is always helpful to get a perspective on investment returns. This article gives you scenarios of returns achieved if you invest Rs 10000 monthly SIP for 10 years.

SIP stands for Systematic Investment Plan. In SIP, an investor invests a fixed sum monthly on an asset class, irrespective of the condition of the economy or stock market. It is a technique of rupee cost averaging. A few mutual funds have also launched daily SIPs. But monthly SIP is sufficient for averaging and is more popular amongst investors. This study is based on monthly SIP. Before estimating returns on SIP, let us first decide on the asset class for investment.

Choosing Asset Class for Investment

There are plenty of options available to an investor for investment. One can invest directly in stocks or indirectly through equity mutual funds. You can also invest in much safer debt mutual funds. There are also Exchange Traded Funds (ETF). Equity mutual funds have a superior risk return profile. Also, you can get higher returns than debt mutual funds by investing in equity mutual funds. Selection of asset class to be done based on risk appetite of individual investors. But for this study, we will consider investing in equity mutual fund.

Selecting Equity Mutual Fund to Invest

Equity mutual funds are broadly of five types. Large Cap, Mid Cap, Small Cap, Flexi Cap, Thematic

Index have returned more than 12% in long term. We’ll avoid thematic and invest in a broad-based fund such as Nifty50 index or Nifty500 index fund.

Rs 10000 Monthly SIP for 10 Years

We’ll invest Rs 10,000 per month via the SIP route for 10 years. Given long-term track record, we assume a 12% annualized return on investment. At the end of ten years, the total value of investments would be Rs 22.42 lakhs, out of which Rs 10.42 lakhs were earned through returns, against a total investment of Rs 12.00 lakh. Please look at image below for year-on-year return.

You can notice that in the year 7 annual return Rs 1.32 lakh is more than the annual investment of Rs 1.20 lakh. By year 10, the annual return (Rs 2.34 lakh) would be around 2 times of annual investment.

Rs 10,000 monthly SIP for 15 years

If you invest Rs 10,000 via monthly SIP for 15 years. Assuming 12% annualized return on investment, at the end of 15 years, the total value of investments would be Rs 47.64 lakhs, out of which Rs 29.64 lakhs were earned through returns against total investment of Rs 18.00 lakh. Please look at yearly report below.

You can see that in the year 15, one year return is about Rs 5 lakh. This is power of compounding.

Returns for 20 and 30 Years Investment

If you can maintain the discipline of investing for 20 years without withdrawing any amount, your total maturity amount would be Rs 92.08 lakhs, against total investment of Rs 24 lakhs.

For 30 years investment, the total maturity amount would be Rs 3.08 crores against total investment of Rs 36 lakh. That is 8.5 times the invested amount.

Returns for 30 Years STEP-UP Investment

If you increase the SIP amount by Rs 1,000 every year and invest for 30 years in the same way, your maturity amount would be Rs 5.33 Crores against total investment of Rs 88.20 lakh.

Conclusion

This is a simple strategy to accumulate huge retirement sum, but it is very difficult to implement. It is simple because it is passive. It is difficult because, you will get into several situations, which may force you to withdraw from your investments. To make this strategy successful, you must have sufficient term insurance, health insurance and an appropriate emergency fund. Also, you need to create different funds for important life events such as an education fund, marriage fund, so that you need not dip into this corpus.

Please let me know, what do you think.