Building Wealth through SIP Investing in Mutual Funds: Case Study (2023)

Are you looking to grow your wealth using SIP in mutual funds in India? Then this SIP success story will inspire you. SIP or Systematic Investment Plan is the most sensible way to build long-term wealth from equity mutual funds in India in 2023 and the future.

Note – This is a guest post by Ajay, a regular reader of Stable Investor. He has written many useful posts here on accumulating funds for recurring expenses, investing surplus money in mutual funds, his own super-detailed experience of accumulating Rs 3.7 crores in 10 years (this is one of the big SIP success stories). Along with Ajay, I also did a super detailed comparative analysis on Real Estate Investments vs. Mutual Fund Investments in India.

So over to Ajay – who is once again highlighting the importance (and benefits of SIP investing) of systematic investing in creating long-term wealth by SIP in mutual funds.

For years, mutual fund companies have been trying hard to convince retail investors about the benefits of SIP. Investment advisors, newspapers, personal finance magazines and even blogs have been doing it for years.

But sadly, despite the Indian mutual fund industry being more than 25 years old, only a small section of the retail investor community has benefited from investing in mutual funds in the real sense.

And this is not a general observation. It’s a fact which has also been highlighted by a well-respected fund manager from Franklin Templeton, based on the analysis of their mutual fund folios after completion of 20 years of Franklin Blue Chip Fund.

According to their study, despite the fund delivering consistently high and market-beating returns, there are hardly any investors who have profited fully from this fund.

The reason for this can be attributed to the fact that most of the times, retail investors are sold products that don’t meet their requirements. The distributors & agents only sell products which give the highest commissions. And this does not stop at that. These agents and distributors then convince investors, to churn their portfolios continuously to extract more commissions from them!

Now there is nothing new or radical that is being said in this post. And you might have already read similar articles about SIPs on other blogs and personal finance magazines. This post is a reiteration of our strong faith in the power of regular investments through Systematic Investing Plan (SIP). We will use facts and figures to further substantiate this faith.

So let us get into the details now:

For this multi-scenario case study, we have chosen the mutual fund scheme: Franklin India Prima Plus Fund – Growth (now called Franklin India Equity fund since 2018-19)

An amount of Rs 10,000 was invested monthly (via SIP) in this fund starting from July 2000 (for a 15-Year Period for this case study).

Now we did not attempt to time the markets or try any other complex techniques. We just focused on doing a plain and simple, monthly SIP of Rs 10,000 for a period of 15 years.

If you want, you can see the entire investment statement by clicking on the small image below:

To summarize, a regular monthly investment of Rs. 10,000/- from July 2000 to June 2015 (with the 1st trading day of the month taken as the SIP day) was done. This amounted to an actual investment of Rs 18 Lacs.

Now in June 2015, which is after 15 years of starting the SIP, the invested amount of Rs 18 lacs has grown into a corpus of Rs 1.28 crores!

Not a small amount considering that just Rs 10,000 was invested every month. And to put it on record, we did nothing spectacular. We just did SIP. That’s it:

Rs 10,000 x 180 Months = Rs 1,28,00,000 (!)

Looks crazy? But that is the power of long term investing.

As a retail investor, you don’t need to be super intelligent or a financial wizard to create a big corpus. As Buffett famously said,

“Investing is not a game where the guy with the 160 IQ beats the guy with 130 IQ.”

For retail investors, the rule of the game of wealth is simple:

Don’t do anything else apart from investing a small amount (as much as you can manage) every month for long periods (to know more, check the detailed SIP calculators).

In our case study, it’s about investing an amount of Rs 10,000 every month for a period of 15 Years.

Not a very difficult thing to do for quite a few of us. Isn’t it?

So if it is so easy to create wealth through a simple SIP, then why do people continuously talk about equities being risky and complain about losing money by investing in stocks and equity mutual funds?

Are the equity mutual funds really that risky? The answer is a big ‘No’.

It is not risky provided you play by the rules of the game. And to convince the sceptics, let us analyze the returns earned by the chosen mutual fund during different periods.

Since the investment is SIP-based, we calculated the XIRR returns over a different period. In our opinion, 7 years+ is a suitable time frame for investing in equity mutual funds.

However, we will calculate XIRR (or internal rate of return) for 3 years, 5 Years, 7 years, 10 years and 15 years.

Rolling 3-Year Returns

Please note that a period of 3 years is not a suitable time period for investing in equity funds.

An amount of Rs 10,000 was invested via SIP on 1st of every month for 3 years. So in 15 years, we get 13 data points on a rolling 3-year basis. The XIRR results are as follows:

Out of the 13 available data points, not even once were the returns negative. The returns ranged from lows of 4.28% to highs of 48.45%.

9 of the 13 three-year periods gave returns in excess of 18% – which is not a small achievement.

4 of the 13 three-year periods gave single-digit returns ranging from 4.28% to 8.32%. No doubt, these figures are low. But there still hasn’t been a loss. Now let’s agree with one fact. In short time periods, bull and bear markets can significantly distort the returns. Both on the higher, as well as on the lower sides.

So let’s carry out a similar analysis for longer time-frames.

Rolling 5-Year Returns

Now 5 years is the bare minimum, which one should consider for investing in equity funds.

In this particular scenario, an investment of Rs 10,000 was made via SIP on 1st of each month in each of the 5-year periods. In a 15-year period, we get 10 data points on a rolling 5-year basis. The results are as follows:

Once again, not even once did the returns turn negative. i.e. there were no loses. In fact, the returns ranged from lows of 8.71% to highs of 49.43%. It is worth noting that the minimum returns are quite close to risk-free (and most of the times taxable) returns provided by PPF and the ever-so-popular bank fixed deposits.

7 out of the 10 five-year periods gave returns in excess of 17%. There was just one single digit return period of 8.71%.

Let’s now move further.

Rolling 7-Year Returns

For a 7-year SIP, the return figures are as follows:

The most important thing to observe here is that once again, there are no negative returns periods. And the returns range from lows of 9.54% to highs of 42.52%.

7 out of the 9 available periods gave returns in excess of 16%. The two lowest returns were 9.54% and 11.04%. And both these are well above the returns given by traditional bank deposits, PPFs, NSCs, etc.

Now, let’s move to 10-year period now.

Rolling 10-Year Returns

In this, we only get 6 rolling periods of 10 years each. The returns corresponding to each of these periods is given below:

No losses. Lowest is 17.40%. Highest is 28.18%.

And all the six period have provided returns in excess of 15%.

It is worth understanding that these type of returns are the best among all available financial instruments like fixed deposits, PPFs, NSC, etc. And unless you were lucky in real estate, you could not have made such returns in any other asset class.

Now the interesting thing about these 10-year periods is that these started with a bear market in 2002 – 2003, which was then followed by mega bull-run of 2003-2007. Then came the crash of 2008-2009, which was then followed by the sideways move of 2009-2014. Since 2014, it’s been a practical bull market till June 2015. So most of the data points in 10-year periods have gone through a couple of bull and bear markets. Yet the returns have been positive and in fact, exceeded 15% in each of the periods.

Rolling 15-Year Returns

In a 15 year period, we just have one data point. And returns for this period of 2000-2015 are 23.25%.

It can be safely said that over a 15-year period, none of the investments (excluding real estate in some specific areas) would have provided such returns. More importantly, such returns have been achieved by small monthly investments without straining your pocket or cash flows.

Now we know what you must be thinking.

Why was this particular fund chosen?

Or what would have happened had we taken any other fund?

Now as per Value Research, the scheme Franklin India Prima Plus Fund (Or Franklin India Equity Fund) is rated highly – as a 5 Star** Fund (at the time of writing this post originally). It ranks in top 3 in the Large & Midcap Equity Funds category* over a 5-year period. It is also among the top 3 funds over a 10 Year Period. To sum it up, it’s one of the best performing funds in its category over short, medium and long term.

* To know more about changes in mutual fund categories recently, read SEBI’s Mutual Fund Categorization and Rationalization changes in 2018.

** Also read, Don’t blindly believe in mutual fund Star Ratings.

So lets admit that we intentionally chose the best and the top rated fund in the Large & Mid Cap Category for the above study. Hence, all results were bound to be in our favor. Isn’t it?

No worries. Lets change the fund now. 🙂

What if we choose a fund that is one of the worst performing funds of its category?

That will be an interesting analysis.

So we take one of the worst performing funds – Sundaram Growth Fund and repeat our analysis.

As of June 2015, Sundaram Growth Fund has been rated as a 1-Star Fund, and ranked in bottom three of the Large & Midcap category over a 5-year period. It is also ranked last in all funds over a 10-year period.

So once again, lets analyse the power of SIP using the worst performing fund.

If you want, you can see the entire investment statement by clicking on the small image below:

To summarize, a regular monthly investment of Rs. 10,000/- from July 2000 to June 2015 was done. This amounted to an actual investment of Rs 18 lacs.

Now in June 2015, which is after 15 years of starting the SIP, the invested amount of Rs 18 lacs had grown into a corpus of Rs 68.42 lacs!

So this has been achieved by a simple SIP in 15 years, when invested in one of the worst performing funds.

Comparatively, the best fund created a final corpus of Rs 1.28 crores. The total investment was the same in both the funds, i.e. Rs 18 lacs.

This divergence in returns highlights the importance of choosing the right fund and monitoring the same regularly for its performance.

Now lets proceed to our XIRR analysis for various time-periods.