Are SIPs Instilling New Hopes in Mutual Funds?

by Vinaya HS on July 22, 2017

in Finance

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According to the data from the Association of Mutual Funds in India (AMFI), SIP investments for the month of April 2017 hit an all-time high of Rs. 4,200 crore crossing a 1 crore-mark in number of SIP accounts. This is following a stellar year of inflows in the market via mutual fund SIPs that recorded Rs. 3,989 crore for the month of March 2017 as opposed to Rs. 1,206 crore monthly in 2014.

In the past one year, there has been a massive jump in the growth of SIPs and number of registrations. Experts have postulated a variety of reasons why SIP investments have instilled new hopes in Mutual funds. With SIPs and any mutual fund investment, you enjoy the power of compounding. As you invest every month, the returns on your existing corpus is reinvested back into the fund thereby maximizing your potential returns.

Suppose you’ve invested Rs 10,000 in a fund that provides a 10% returns annually. At the end of the year, you would have earned Rs 1,000 in interest. In the second year you will make Rs 1,100 because not only your initial investment of Rs 10,000 accrues interest, but the additional Rs 1,000 that you made in the first year yields you money.

The 10th year interest would be Rs 2,358 and in the 30th year you will stand to make Rs 15, 864 – All this without making a further investment beyond the initial Rs 10,000. Now imagine the possibilities, if you were to invest this amount every month or on a quarterly basis. Also, you can start with as low as Rs 500 per month.

Principle: Rs. 10,000

Interest rate: 10%, compounded yearly



Another popular reason for opting for SIPs is the rupee cost averaging feature of the SIP that can ease out the average cost per unit over time. Essentially, this means an investor can purchase more units when the prices are low and less units when the prices are high.

SIPs can be used to achieve your financial goals like meeting funds for a child’s education, expenses for a marriage and to even create a corpus for a secured retirement life. By the power of systematic investing, you can harness the power of the stock market to get returns that other investments seldom provide.




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