Oct 17, 2017 4 min read

Can Investments in Mutual Fund SIP Make Me Rich?

You too can become a millionaire if you plan it in a systematic way.
This question often knock out the minds of many individuals who are willing to start their journey toward their financial well-being. Some of the newly entered investors have also inquired about the potentiality of the SIP in building wealth.

So, we brought you the simplified concept of some of the queries which will help you understand the real potential of the SIP. Read this blog to the end to know how you can reap the maximum benefits out of your SIP investments.

Systematic Investment Plan : It is a process which allows you to systematically put your money into the scheme of your choice and provides you with some exclusive benefits. No doubts, it is the most efficient way of investing in mutual funds. It has also became the trend as many new investors flocked into the world of the mutual fund through this route. To understand the concept, first of all, you must get one thing clear which is SIP is not an investment, it is just a mode of investing in various schemes. Therefore, it cannot be good or bad. Actually, the performance of the fund in which you invest determines the returns of your investment, and thus a rewarding scheme is good for you and not so rewarding is bad. SIP, in any case, is not responsible for the good or the bad returns on your investments.

What SIP Actually Does?

As we already said in the above-lines that it is just a mode of investment in various types of mutual funds, it only offers the way of attaining the financial goals in the best possible manner. It helps you to instil specific investment habits which ultimately assists in fulfilling all your financial dreams effortlessly. Other than this, SIP never guarantees the returns. Its systematic process helps the investors to go in a proper way toward wealth creation.

How You Can Become Wealthier Through SIP in Mutual Funds?

From the above paragraphs, it must be clear that the process of SIP only serves the way of attaining the future goals efficiently. And, it completely depends on the performance of the fund in which you invest that how rewarding your investments will be. However, to some extent, the process of systematic investment is beneficial as it has many features which help to increase the profitability of the investments. Here are some of the unique advantages of this process:

  • Instalment Process : First and foremost, the benefit of investing through this process is that it helps in reducing the burden of deploying big amount at once. It allows the investors to park a small and periodical amount of money into the selected mutual fund over a certain period of time. For example, if you desire to have a corpus of Rs. 1 crore at the time of your retirement, and your current age is around 30 years or less, then you can easily attain it by saving Rs. 2000 monthly in SIP of any suitable scheme. In the next thirty years, i.e., at the age of your retirement, your total investment value will be Rs. 7,20,000 and the total future value of your investments at an expected growth rate of 15% will be Rs. 1,40,19,641. Therefore, you can easily chase big financial dreams efficiently with small steps like Rs. 2000 per month.
  • Power of Compounding : It is one of the best benefits of investing through the process of SIP. As it allows you to park a small amount of money on a regular interval, the instalment gets rolled over and increased during the course of time. The interest upon the interest on the instalment is termed as the compound interest. You may have little idea about the power of compounding interest. Let’s take a short illustration to understand the same: ** The future values shown in the above table are shown on the basis of the expected growth rate of 15%.

Power of Compounding

In the last column of the above-mentioned table, you can see that the growth in the future value after every five years increases more than double. It is possible only because of the compounding interest over the period of time. Therefore, the fantastic benefit of the power of compounding can help you to multiply your money if you stay invested for an extended period of time.

  • Rupee Cost Averaging : Another special feature of SIP is Rupee Cost Averaging. It helps the investors to average down the total cost of the investments so that they can buy more of the mutual fund units with limited amount of money. Let’s know how it works in reducing the total investment cost:

Rupee Cost Averaging

In the above table, you can clearly see that how SIP plans at different intervals help to buy mutual fund units at different prices (NAV) of the scheme, thus reducing the total cost of the investments.

In the final note, if you invest in the suitable scheme and stay invested for a long term, then you can earn a significant amount of returns in the future. And, this way you can say that yes, SIP made me richer. If you want to start right away, get associated with MySIPonline now!