3 Big Changes that will impact Mutual Fund Investors

Big Changes in Mutual Fund

Last few months have been very dynamic and interesting for the mutual fund industry.

3 big changes have taken place that are going to impact all mutual fund investors and how they take their investment decisions in future.

If you are a little confused about what these changes are, then let me calm you down.

Maybe you have already heard about them but not understood their impact fully. Or it might have slipped off your mind as the impact may not be immediate or even short term. Nevertheless, I feel that these 3 changes need to be understood by you as long-term mutual fund investors.

So without wasting more time or making it a very long post, I will try to highlight what these changes are.

By the way, I have already written about two of these changes in super detail earlier. I will share the links two those articles shortly.

So what are these changes?

  1. Introduction of Long-Term Capital Gains Tax (LTCG) on equity
  2. Categorization & Rationalization of existing funds
  3. Use of TRI or Total Return Index for benchmarking of funds

If all three seem boring and too technical to you, then please hold on (and don’t close the window).

These are important changes. These are not just administrative changes that will have no impact on you. These three (yes…all three of them) will impact you and have a role to play in how much wealth you will create. So it makes sense to understand these changes.

Please. 🙂

Your money. Your responsibility.

I hope you are still reading.

Let’s get into these changes now…

1) Introduction of Long-Term Capital Gains Tax (LTCG) on equity

Unlike earlier years, your profits (capital gains) from equity after 1 year will now be taxed. So the actual money that you get in hand will be little lesser than what you would have got in a zero-LTCG regime.

But I won’t get into the details about LTCG tax here.

I have already addressed the impact of LTCG tax on long term investors in a super detailed post mentioned below:

Real impact of LTCG tax on long term equity investors

So I strongly recommend you read that post if you haven’t already.

It’s a little long but that should not stop you from reading it as its important. Bookmark it and read it when you have made time for it.

2) Categorization & Rationalization of existing funds

The regulator SEBI has ‘forced’ the fund houses to clean up their acts and make their fund offerings more logical, simpler to understand and more investor-friendly. This also forces the fund houses to be truthful to what they are offering.

This might seem just like a cosmetic change upfront to many. But it isn’t. This is one of the biggest change in Mutual fund space in recent years.

This will directly impact your investments as some of the funds will see big changes in their portfolio. And if you are MF star-rating lover, then please note that this will also impact how much returns some of the earlier 5-star rated and popular but now ‘rationalized’ funds will deliver.

So if you are an existing investor of any of these funds, then you will be impacted. So logically speaking, you should sit up and take notice of this change.

Want more details to understand it?

I have written a huge article on this.

Here is the link to that article:

Real impact of the NEW Categorization & Rationalization of existing mutual funds that YOU have Invested in

Please read it. Like the first one, this too is important even if you don’t feel it is right now.

That brings us to the last one…

3) Use of TRI (Total Return Index) for benchmarking of funds

(I haven’t written about this topic. So I will tackle it here itself in some detail)

This is another important development. It won’t put more money in your pocket directly. But it can help you take better decisions when picking right mutual funds – which in turn can put more money in your pocket eventually. 🙂

I will explain myself in a bit.

The respected regulator SEBI has asked all mutual fund houses to adopt the Total Return Index (TRI) to benchmark their schemes.

According to the regulator (and many others), this is a more appropriate way to measure the performance of such financial products. Here is a link to SEBI’s circular on TRI adoption for benchmarking fund mutual performance – Link

Till now, most equity mutual fund schemes have been benchmarked to the Price Return variant of the Index (PRI).

So what is the difference between this new animal TRI and the old PRI?

When you invest, there are 2 components of the total return you can make from your investments. First is ofcourse capital appreciation, And the second is the dividends from that investment.

If you only consider capital appreciation, then it means you are looking at PRI version. But if dividends are factored in too alongwith the capital appreciation, then that’s TRI – Total Returns.

Naturally, the returns of a total return index will always be higher than that of a price index.

Let’s now come back to the mutual funds.

The MFs receive dividends on the stocks they hold in their portfolios and this dividend is re-invested into the scheme. So ideally, they should compare their performance with Total Returns Index. That would be fair. But as I said earlier, they use PRI or Price-only Index.

How does it change the depiction of fund manager’s ability?

Suppose a Rs 100 invested in a fund becomes Rs 120.

The PRI index (which is generally used) to benchmark has grown itself from 100 to 112 in meantime. So in this case, the outperformance over and above the benchmark is Rs 8 = (Rs 120 – Rs 112).

On the other hand, TRI includes dividends and hence will be higher than PRI. Suppose it is 116. Obviously, the outperformance over and above the benchmark is now reduced to just Rs 4 = (Rs 120 – Rs 116).

Here is a simplistic summary:

Total Return benchmark Indian mutual funds

What has happened and why have fund managers been using PRI till now?

As returns appear lower in case of a PRI, it is easier for a fund to show higher out-performance against it. Read the previous statement again.

So when the fund compares itself with a PRI, it shows a much higher outperformance than it is actually doing (when compared with TRI). 🙂 🙂

PRI doesn’t capture the dividends which are available for the fund. TRI does that.

This gap between the price-only returns and Total-Returns in a way tells that by avoiding the recognition of dividends (in TRI), it actually helps the case of fund managers as they can set a lower bar on the returns that they need to make to ‘outperform’ the benchmark! 🙂

This might seem bad but luckily, SEBI has taken care of this by forcing fund houses to adopt TRI now. I am sure that if SEBI had not pushed the fund houses, most MFs would have continued to use PRI benchmarks. To be fair, few fund houses had already adopted the TRI for benchmarking even before the regulations came. Cheers to them!

I did some number crunching with Nifty50 data of last 10 years (Apr-2008 to Mar-2018).

The Nifty returned 7.87% over this 10-year period, while it’s TRI version returned 9.16% over the same duration.

Now suppose the fund you invested in gave a return of 10% in the same period. If you use PRI, then outperformance is 2.13% whereas if you use TRI, the outperformance over benchmark reduces to just 0.84%.

Nifty Total Return benchmark mutual funds

It is still outperforming the benchmark, but as you might have noticed, the outperformance (or what fund managers take credit for and become celebrities) can go down significantly due to change in benchmarks.

Hence, TRI is more appropriate as a benchmark to compare the performance of mutual fund schemes. And going forward, atleast some of the funds will have a tougher time beating this benchmark – something that they were able to do easily earlier. This pushes fund managers to work harder to generate real alpha (outperformance) and not rely on technical differences between TRI and PRI to artificially bloat their alphas.

But nothing is perfect.

Some people are saying that even the TRI is not perfect.

Why?

Because mutual funds have to keep some liquid cash aside too – for liquidity needs and in search of better opportunities. And the index – which is the benchmark does not have to keep this cash! So if this cash component of the fund is slightly large, then it can drag down the overall performance of the fund. And this reality is not captured by the TRI.

So it seems that the PRI was overstating performance while the TRI is ‘slightly’ understating it when compared to the index. 🙂

This is true to an extent. But I don’t buy the argument completely as cash was held even under the PRI regime. This is nothing new that is introduced in the TRI regime. Isn’t it?

As I said, nothing is perfect. So we really cannot ignore the investor-friendliness of using TRI over PRI for benchmarking.

But it is important to highlight something here:

The use of Total Returns version of the Index for benchmarking has absolutely no impact on the actual returns generated by the mutual funds. It is just done to ensure that fund performance is compared more accurately against a correctly chosen benchmark.

I know what you are thinking.

If this doesn’t impact the actual returns, why should we even be bothered?

There is a need to understand this difference between total return and price return. And it is because when you are picking good mutual funds to invest in, one of the many important criteria is to see how is the fund’s consistency with respect to its benchmark. As since beating the benchmark will be slightly tougher now, this factor will play its role in the proper selection of good mutual funds to invest in for the long term.

Let me remind that beating benchmarks is not the only factor in fund selection. There are several others which are important enough.

Another thing to note here is that changeover to TRI in no way means that fund managers will not beat their benchmarks. It only means that the number of funds beating the same benchmarks will be reduced in years to come. This fact will get a further push as SEBI’s directive to rationalize mutual funds has asked fund houses to just have one fund per category.

On a related note, some people are of the view that since beating benchmarks will be tougher, its best to go for index funds. There is no clear-cut answer here, to be honest.

Index fund is a beautiful product. More so now. But still, good fund managers will continue to do better than those index funds.

But the margin of their outperformance will get reduced to some extent. And as the years progress, the difference (or outperformance) will get reduced on a category basis. I will still not write off active equity funds as I believe that proper fund selection can increase the probability of finding index-beating and proper-benchmark beating funds.

But I agree, that the time for index funds will come soon.

And now more than ever, it’s true that an Index fund may not beat a good fund manager. But it will surely beat a bad one. 🙂

Why is SEBI pushing for so many changes in the Mutual Fund industry?

Many followers of the MF industry (me included) can vouch for the fact that the last few months have been quite eventful for the industry as a whole.

Implementation of LTCG on equity gains by the government, rationalization of schemes and forcing adoption of TRI by SEBI – these are not small developments.

And as far as I can make out, the future will see more announcements of such regulatory measures.

As you might have guessed by now, these are being done to ensure that the industry remains investor-friendly and curb misselling to some extent.

The industry is growing by leaps and bounds and as more and more people are joining the mutual fund bandwagon believing that #MutualFundSahiHai, it is only rightful that the regulator is doing its bit to nudge the industry to clean up and take a moral high ground.

I hope this article that focuses on use of Total Returns Index for benchmarking by mutual funds and other two focusing on tax on LTCG from equity and Categorization & Rationalization of Mutual Funds were able to give you the clarity that you need to have regarding these changes.

For common people, the Mutual funds are the best investment option to create wealth in the long run. And with new changes, it is expected that industry will be better regulated and investors will have the right information to ask the right questions from their fund managers.

Inspite of these 3 changes, nothing changes in how you should go about managing your money. Know yourself and your financial goals. Get yourself a good financial plan that gives you a roadmap to invest properly. And then, stick to the plan and continue monitoring your investments properly. That’s all that is needed.

So happy investing.

If you have any questions pertaining to these developments or want to take professional help in creating a solid financial plan (details here), please contact me.

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Are Mutual Fund Star Ratings any Useful?

Mutual fund star ratings

Thousands of people rely on mutual fund star ratings for picking good or best mutual funds to invest in. It’s a popular metric amongst investors and advisors alike.

These stars (ratings) are provided by agencies like Morningstar, Value Research, Money Control, CRISIL, etc. Most of them rate funds on several parameters and come up with a star rating – which ranges from 1-star to 5-stars. Top funds get 5-stars and ones at the bottom get 1-star.

It’s a simple method of comparison for investors and advisors. Naturally for fund houses, it is also a free method of advertisement for their well-rated products. 😉

Most people believe that a 5-star rated fund will perform better than all others. But truth is that… this is not necessary.

So…

Are Mutual Fund Star Ratings really useful?

Before we move on to discuss this important question, let’s understand why these ratings are so popular first.

The number of funds available is overwhelming and unnecessarily large and most people don’t know how to pick the right mutual fund schemes. So they take the easy way out and end up relying on star ratings.

In words of the founder of Morningstar, the star rating system ‘is a way to whittle down a big universe into something more manageable.’

I agree here.

Mutual Fund (star) ratings are designed to help investors quickly identify funds to consider for their investments. For starters, they give investors a quick-and-dirty opinion on the chosen fund within minutes. And this is perfect for our era of time-poverty.

But the problem arises when investors rely solely on these ratings to pick funds.

They treat these stars as a guide to future performance and high star rating to be a definite buy signal.

This is not the right approach. It is plain stupid.

Mutual fund ratings by themselves do not guarantee high returns in the future.

It is not at all necessary that a 4- or 5-star rated fund will always perform better than a 3-star one. But it is generally expected that over a period of time, better rated mutual funds do perform better than lower rated ones. But there are numerous instances where lower rated funds have outperformed higher rated ones.

In this post, I don’t intend to talk negatively about rating agencies. There is nothing wrong with the concept of star ratings. These are based on actual data and solid maths.

The idea instead is to remind investors that they need to look beyond star ratings. Many investors rely blindly on star ratings and have questions like:

  • Should I choose only 5 star rated mutual funds?
  • Should I choose only mutual funds that are either 4 or 5 star rated?
  • Should I switch out of my mutual fund investments every time my fund’s rating is downgraded?

These investors need to wake up and understand that the star ratings are not enough.

But investors alone should not be blamed. Many financial advisors love star rating systems too.

They take this easy route and use star ratings to justify their advice. 🙂 I have seen this being done by many advisors! Even many of you would have experienced it. It’s a cover-your-@$$ type of service… An advisor can say, ‘I’m going to put you in this fund, it’s a 5-star fund,’ …and if something goes wrong the advisor can shunt blame to the rating agency.

🙂

But keeping aside advisors and rating agencies for a while now…

Why you should not blindly depend on ‘Mutual Fund Ratings’?

Ratings do a decent job of accurately analyzing a fund based on its past performance (and few other criterias). But the downside is that this isn’t a good guide to future performance.

You cannot use these ratings to correctly predict future performance. And that is what most people forget.

Remember the standard disclaimer that has become too common for its own good?

“Past performance is no guarantee of future results.”

It is not just a disclaimer. It’s reality!

Most fund rating agencies do suggest that their star ratings are backward-looking assessments. And since past performance is no guarantee of good future performance, one should consider the limitations of these ratings when making investment decisions based on them.

At best, these ratings should be considered as a sort of filtering mechanism when selecting mutual fund(s) to invest in. Both for lumpsum and regular SIP investments.

If necessary, then investors should only use this ratings data as a starting point, combine it with other important factors (consistency, suitability, fund objective, portfolio, expenses, fund manager’s track record and experience, investment process followed, integrity of the fund house, etc.) for shortlisting funds.

My view is that these ratings may not be even a good starting point for research. I prefer taking the data and analyzing it myself.

And think of it, it would be really great if picking funds were as simple as looking at how many stars it has earned. If rating agencies believed in their ratings, they would be running big portfolio funds which would be investing in these high-rated funds. 😉 That is something to ponder about.

And it’s not just me who is being sceptical here. Even Morningstar’s CEO voices similar thoughts here:

  • We recognize and have often acknowledged the limitations of a measure like the star rating that’s based on past performance, but we also believe it can usefully tilt the odds in investors’ favor, when combined with other research and tools.
  • We’ve long described the star rating as a worthwhile starting point for research that can help investors make good decisions, when combined with other research and tools.

I say this again – mutual fund ratings as a concept is fine. But as an investor, you need to focus on more important things.

Instead of looking to invest in all the top rated mutual funds, you first need to ensure whether you got the category of the mutual funds right or not. And that is after you have decided which financial goals you are investing for.

Choosing the highest rated fund in the wrong category can kill your investments and you risk not achieving your financial goals. Being in the ‘Right’ fund in right category is much better than being in the ‘best’ fund of a wrong category.

The ‘best’ mutual funds suited for your real goal-based investing needs may not necessarily be 5-star rated. They may not be category toppers too. Also, a high ranking for a particular fund does not mean that it will be necessarily suitable for each and every investor.

Another issue is that different strategies (fund’s investment strategy) or styles go out of favor and then come back after few years. So if you exit a fund that has dropped in rating due to their particular reasons, chances are that you will miss out when the strategy returns with all guns blazing.

This is something that most people don’t realize when going via ‘I-only-bother-about-fund-rating’ route.

Is it a Mirage?

Recently, a Wall Street Journal (WSJ) article titled The Morningstar Mirage created a lot of drama in the investment fraternity. And the subtitle of the article got straight to the point:

Investors everywhere think a 5-star rating from Morningstar means a mutual fund will be a top performer – it doesn’t. 😉

In the article, WSJ concluded that the top-rated funds attracted a majority of investors’ money (in the US) but most didn’t continue performing at that level. Unsurprisingly, the rating agency in question hit back (link) with its counter-views protecting itself; and in essence claiming that their ratings were not supposed to be predictive and they should be a starting point for investors selecting funds. Their CEO also pitched in with his views (link).

If you go through all the articles related to this particular episode, you will understand that the rating companies also know about the shortcomings of star ratings but they have a business to run. 😉

Let’s talk about the possibility of conflict of interest here.

I am sure most mutual fund rating entities are professionally run. And since most information is in public domain, chances of wrongdoing seem limited.

But who knows… 😉 😉

A fund that is rated well (lots of stars) will attract more investments if fund houses pitch it strategically to advisors and investors. Its easily possible that investors would continue to pour fresh money into top-rated funds even if their performance declines – just because the rating is still high.

So whether they agree or not, the fact is that the rating companies are a big beneficiary of their own ratings. Think about it. I know a few things. Others might know as well. But I am not saying anything more here… 😉 If you know what I am pointing to, you will understand. Else, ignorance is bliss.

And with a sustained rally in Indian equities for last many years, equity is no doubt turning out to be an attractive asset class. At such times, its all the more necessary that the role of mutual fund rating agencies is critically and subjectively assessed.

Maybe, the Fault is not in ‘Stars’ but in Us

Here I quote from an article by Barry Ritholtz that has some apt words:

Retail and professional investor alike seem to ignore the fact that every single document ever generated by any investment-related firm has a warning on it to the effect that “Past performance is not an indicator of future returns.” Every chart ever drawn, each investing idea back-tested and every single historical comparison is testament to how little mind humans pay to that disclaimer.

To borrow from and paraphrase the Bard, the fault lies not in the stars, but in ourselves.

Thus, it should come as no surprise that misunderstanding what fund ratings mean is a very typical error made by, well, just about everyone. It isn’t a forecast of future returns, nor could it be.

If it could successfully do that, [Mutual Fund Rating companies] would have long ago set up a hedge fund to profit from its newly discovered abilities to identify winning investments.

Sounds logical. Isn’t it?

Bottom Line

I reiterate that mutual fund ratings are fine as a concept and provide useful insight into a fund, how it has performed in the past and how it invests. But they are not meant to be used in isolation or as a predictive measure.

When it comes to things like ratings, you cannot build a perfect system. Never. But it’s your hard earned money. You should atleast know the limitations of factors on which you are basing your investment decisions.

The best way to invest in mutual funds in India is not by just looking at the mutual fund star ratings. Ideally, investors need to use data, do some homework and estimate how a fund might perform in future. And that is very important. The rating system alone does not have complete information for making such a subjective judgment.

So should you ignore mutual fund star ratings altogether? Or are mutual fund ratings useful? Or are mutual fund ratings of no use? And will 5 star rated funds perform better than all others? Are star ratings the best way to choose a mutual fund?

I have already shared my thoughts. It’s best if you decide about the final answers to these questions yourself.

Your Tolerance for Market Falls Is Probably Not What You Think

Risk Loss Tolerance markets

When markets fall or the economy goes into a recession, you will remain invested. Or better still, you will invest more (buy low philosophy) to ensure great future returns when markets recover.

Right?

That’s the plan?

Great! It is exactly how it should be. And staying invested (and investing more) in the market falls is how you can create a lot of wealth from stock markets.

But it’s easier said than done.

You ‘think’ that you will remain invested or invest more in market falls. But will you actually do it?

That is something that only time will tell.

But I feel that people’s tolerance for market falls is probably not what they think it is. I cannot prove it. But let me show you an example and maybe you will realize it too.

I am simulating a Rs 10,000 SIP in HDFC Equity Fund starting from January 2007.

I have picked this starting point for one reason. The returns just before Jan 2007, i.e. upto Dec 2006 were great and hence would have attracted many new investors into the market.

So these investors would have begun their investment journey having their own ‘easy money’ notions about investing due to (recent) past experience.

Now have a look at what happens to the value of the investments from January 2007 to March 2009:

Value SIP Market Fall

Observations

  • In the 1st year of SIP, the investor would be patting his back that it was the right decision to begin investing. By December 2007, the investment would be up by almost 30%.
  • But then came what we all remember – the great leveller – the crash of 2008-2009.
  • The investor would have continued his SIP of Rs 10,000.
  • By March 2009, his investments would have come down drastically. Value of total investment of Rs 2.7 lac would have been about Rs 1.7 lac. So from highs of around +34% to a gut-wrenching low of -35%.

And this is where I want to stop this simulation.

What happened after this is well known to all. Markets kept moving higher and higher… and higher.

But think about it.

How many people would have got the guts to remain invested after seeing a drop from +35% to -35%. I know many who lost money and exited.

The notion that equity will give high returns no matter what… is not correct. It’s a volatile asset class and will remain so forever. Investors need to realize that these things will happen whether they accept it or not. And when this happens, their tolerance for losses will be tested.

People have different tolerance(s) for big market falls:

  • When they think about market falls
  • And when market falls actually happen 🙂

How people feel about big falls depends almost entirely on what has been happening in the market recently.

Investors who are asked about their tolerance following high past returns are likely to overestimate it, swayed by exuberance. Investors who are asked following low past returns are likely to underestimate it, swayed by fear.

In rising markets, it’s very easy to claim that you will remain invested in big falls. But most people’s tolerance for portfolio falls is not what they think it is.

And just to clarify, it’s not about starting or stopping SIPs to time the market.

SIP is a small amount when compared with a multi-year old portfolio.

Assuming the investor in discussion is not a new one and already holds a Rs 20 lac portfolio at the start (with Rs 10,000 SIP running), here is what he will have to face in 2007-2009:

Mutual Fund Portfolio Fall

After having Rs 20 lac at the start with Rs 2.7 lac in fresh investments, it is not easy to see your portfolio go down to Rs 14.8 lac. And notice the fall from Rs 32 lac (in Jan-2008) to Rs 14.8 lac in March 2009.

This investor would be less worried about starting or stopping SIPs and more about containing the fall of his multi-lac portfolio that he had already built.

I don’t want to scare you.

For most common people, SIP in equity mutual funds is the best approach to benefit from stock markets.

My only aim with this post was to highlight that you need to accept losses ‘too’ when doing your SIPs. It cannot be one way up. Equity is not a bank FD.

So think about it.

Is your tolerance for market falls and losses really what you think it is? If not, teach yourself to overcome the fear when things really do get bad.

SIP Mutual Fund Maturity

Mutual Fund SIP Return Calculations – How much Wealth is Created?

SIP Mutual Fund Maturity

Do you wish to know how much your monthly SIP investments in mutual funds will grow over a period of 5 years, 10 years, 15 years, 20 years, 25 years or even 30 years?

Then you will find answers to all your SIP returns and monthly investment growth amount-related concerns here. And you don’t even need a SIP calculator as I have already done the hard work for you.

SIP investing can create tremendous wealth for you and to know is how much your money can grow when investing via monthly SIP in good mutual funds, simply click on any of the links or image below. All links take you to individual detailed posts that tell about the final value of the chosen SIP amount and model MF portfolios:

Or click on the images below:

Invest 10000 month SIP

Invest 15000 month SIP

Invest 20000 month SIP

Invest 25000 month SIP

Invest 50000 month SIP

Invest 1 lakh month SIP

Using the above links, you will have clear idea how your SIP investments will grow when you remain invested for 5 years, 10 years, 15 years, 20 years, 25 years or even 30 years!

Investing via SIP in best mutual funds for long-term is one of the best ways to begin your wealth creation journey. And since most common people are unable to big lump sum investments, SIP makes it very easy for such people to make small regular investments every month using their monthly salaries without feeling burdened. To convince you further, here is a Real Life Story of how one person accumulated Rs 3.7 crores via SIP investments over long-term.

But wealth creation is not the only benefit of SIP…

You can even use mutual fund SIPs to do your financial goal planning + invest regularly to achieve them. Saving for goals like children’s education, children’s marriage, retirement planning, saving for your house purchase, foreign trips, etc. can be done easily and profitably through systematic investment plans of mutual funds.

Here is a FREE (Downloadable) Financial Goal Excel Worksheet that you can use to plan out your financial goals.

As a professional investment advisor, I do help investors create goal-based financial plans to achieve their real financial goals. If you wish to get yourself a solid financial plan that tells you how much to invest, where to invest and for how long to invest for your financial goals, you can contact me for professional advice.

Here is how to contact me:

  • Go through the Services Page to see how I create your financial plan and use the form (at the end of the page) to contact me
  • Contact me directly using this form

So if you still haven’t done it, it’s time to start a SIP in Equity Mutual Funds.

I can assure you that over the next 5-10 years, you will create a lot of wealth and it will easily be one of your best financial decisions till date.

Invest 5000 per month SIP

Invest Rs 5000 per month SIP Mutual Funds

 

Many people are of the view that they should only begin investing when they have a large sum to invest. The underlying belief is that small regular investments cannot create wealth.

But this is not true!

Did you know that by investing just Rs 5000 every month in equity mutual funds through a monthly Systematic Investment Plan (SIP) can create a corpus of Rs 1 crore in 15-20 years?

This might seem surprising. But you can easily accumulate Rs 1 Crore by investing just Rs 5000 Monthly.

So if you wish to know the best way to invest Rs 5000 per month or how to invest Rs 5000 per month and get Rs 1 crore, then you are at the right place.

Investing in mutual funds is one of the best ways to begin your wealth creation journey. And if you have already decided to invest 5000 per month in mutual fund SIP, then it’s all the more better.

Why do I say so?

Because it’s well proven; I have benefited from it greatly myself and also because I can share a real-life proof of how one person used SIP investing to create a portfolio of multiple crores.

SIP or Systematic Investment Plans are simple – invest a fixed sum in mutual funds at a regular frequency (generally monthly). Since most common investors are incapable of making big lump sum investments, SIP makes it easy for such people to make small regular investments every month using their monthly salaries without feeling burdened.

Once you have decided to invest a sum of Rs 5000 every month regularly, I am sure that you would be curious to know how much money you will have when you invest Rs 5000 a month in mutual funds for several years?

Right?

So let’s do some basic calculations:

Value of Rs 5000 per month SIP (Systematic Investment Plan)

Historical SIP returns of good mutual funds have been between 12-18%. The actual returns might differ for different investors. But for this discussion, let’s be conservative and assume the average SIP returns in 10, 15 or 20 years to be 12% per annum.

Here is what a Rs 5000 per month SIP in mutual funds can do over the years:

  • 5 year SIP of Rs 5000 monthly = Rs 4.2 lakh
  • 10 year SIP of Rs 5000 monthly = Rs 11.7 lakh
  • 15 year SIP of Rs 5000 monthly = Rs 25.0 lakh
  • 20 year SIP of Rs 5000 monthly = Rs 48.4 lakh
  • 25 year SIP of Rs 5000 monthly = Rs 89.6 lakh
  • 30 year SIP of Rs 5000 monthly = Rs 1.62 crore

Wow!

Those are some big numbers…atleast towards the end. And the picture becomes clearer when you compare these figures with the actual investments made:

  • 5 year = Rs 5000 x 12 x 5 = Rs 3.0 lakh
  • 10 year = Rs 5000 x 12 x 10 = Rs 6 lakh
  • 15 year = Rs 5000 x 12 x 15 = Rs 9 lakh
  • 20 year = Rs 5000 x 12 x 20 = Rs 12 lakh
  • 25 year = Rs 5000 x 12 x 25 = Rs 15.0 lakh
  • 30 year = Rs 5000 x 12 x 30 = Rs 18 lakh

The route of SIP investing can create a lot of wealth for you.

And just notice this – If you invest Rs. 5000 per month via SIP for 10 years, you are actually just investing about Rs 6 lakh. But return you are getting is around Rs 12 lakh. It is double of what you originally invested over the 10-year period. And the longer you keep investing, the better the returns get!

So just imagine the kind of wealth you can create if you start investing early on in your career (let’s say at age 25-30) and continue till 60.

Your monthly investments of Rs 5000 in equity funds can grow into Rs 1.62 crore in 30 years! This is the magic of compounding at play. Many who think that becoming a crorepati on regular salary is impossible – need to see these examples. They will realize that seemingly unachievable wealth targets can be achieved by investing as small as Rs 5000 per month.

Compared with other options like fixed deposits, PF, etc. (where you won’t get more than 7-8% returns), equity funds are great for real inflation-beating wealth creation.

And at the cost of sounding repetitive, I would say that starting early is unimaginably important. Here is something (very detailed) I wrote about the huge cost of delay in investing. It’s about two friends who start investing at different ages of 25 and 35. You will be shocked to see the difference in the final corpus they create. Do read it!

 

Real Example – SIP of Rs 5000 in Good Mutual Funds

The calculations shared above were done using simple SIP calculator (using fixed average returns of 12%). But in reality, the returns fluctuate and neither stock markets nor mutual fund NAVs move in straight lines.

So let’s use some real life SIP examples instead.

Let’s see what would have happened if you would have started investing Rs 5000 every month via SIP in some good mutual funds years back:

Note – The choice of fund(s) or fund house is just for sharing the concept. It should not be construed as an investment recommendation.

Starting January 2000, if you had invested Rs 5000 per month in HDFC Top 200, HDFC Equity and HDFC Prudence, your actual total investment in each would have been about Rs 10.55 lac (up to July 2017).

And the value of your investments would be…

….hold your breath….

  • Rs 87.1 lakh in HDFC Top 200 Fund
  • Rs 93.1 lakh in HDFC Equity Fund
  • Rs 81.4 lakh in HDFC Prudence Fund

Read those figures again. 🙂

We often think it’s difficult to get rich. The above examples prove otherwise. Rs. 5000 Per Month For 15 to 20 Years and you will become a Crorepati.

Investing in mutual fund SIPs can make you a SIP crorepati even with a normal income! No need for a rich father. 😉

So how to get Rs 1 crore in 20 years? The answer is to invest 10000 every month. How to get Rs 1 crore in 15 years? The answer is to invest Rs 20000 every month.

So now you have answers to your questions like how to become a crorepati by SIP.

But…

Don’t you feel something is odd in this discussion till now?

There is. And let me highlight it for you –

There is absolutely no need to keep investing just the originally decided amount of Rs 5000 per month for 20-30 years. Your income would increase every year. So your investments too should increase accordingly. Isn’t it?

Just imagine what would happen if you decide to go for a Step Up SIP? An SIP that increases every year in line with your income. So for example, it can be Rs 5000 in the first year, followed by 6000 per month in next year, 7000 per month in 3rd year and so on…. (i.e., increasing SIP by Rs 1000 every year).

If you want to start a SIP, always keep in mind that you can create ‘more’ wealth if you are able to increase the SIP every year.

Now ofcourse I have chosen funds that help me prove my point. And there have been several other bad funds too where a systematic investment strategy would have resulted in much lower SIP returns. But I am trying to highlight the potential of serious wealth creation here. And if you believe in the power of equity, then for most common people, the best way to invest regularly in equity is to do it via mutual fund SIPs.

Model SIP Mutual Fund Portfolio

If you wish to create a portfolio of mutual funds by investing in a SIP of 5000 per month, it’s suggested to have 1-3 funds. Going for more is not necessary.

Depending on one’s risk profile, some possible options are:

  • Rs 5000 in Large Cap fund
  • Rs 2500 Balanced fund + Rs 2500 Large Cap fund
  • Rs 2500 Large cap fund + Rs 2500 Small & Mid Cap fund
  • Rs 3000 Large cap fund + Rs 2000 Small & Mid Cap fund
  • Rs 3500 in Multi Cap Fund + Rs 1500 Mid & Small Cap fund

There can be any number of combinations. Suitability of SIP portfolio will differ from one investor to other.

If you are not sure about where to invest or are looking for the best SIP for Rs 5000 per month or start to invest 5000 per month and get 1 crore, it’s better to take help of an investment advisor.

Note – It’s assumed that if investing Rs 5000 in equity funds, you have already taken care of debt investments (via PF, PPF, etc.) in accordance with your asset allocation based investment plan. It is also assumed that you wish to invest for atleast 5 years. Anything lower (like 2-3 years) and you should go for debt options or have a very small percentage in equity.

SIPs are really helpful when it comes to investing in equity without much effort or stress.

But SIPs in equity funds can be helpful when it comes to goal based investing too. You already know that equity has the potential to offer much better returns than other asset classes. This in turn helps you beat inflation which is essential to achieve long-term goals.

I have already written at length as to how setting goals can help better manage investments.

It is always advisable to attach a goal to your investments. It helps keep you motivated and stick with the investment plan for long enough. And this is exactly how the remarkably powerful goal based financial planning works.

You can easily use SIPs to plan for all your goals (Download FREE Financial Goal Excel Worksheet here) and then invest regularly to achieve them. Goals like saving for children’s education, children’s marriage, saving for your house purchase, foreign trips, etc. can be done easily and efficiently through systematic investment plans of mutual funds.

And why leave the biggest financial goal of them all?

You can even do retirement planning or early retirement planning using mutual funds. In addition to the mandatory savings you do for your retirement (via EPF or PPF), you can use SIPs to create a good retirement mutual fund portfolio. Investing in mutual funds for retirement is a no-brainer if you don’t want to run out of money before you die.

As a professional investment advisor, I do help investors create goal-based financial plans to achieve their real financial goals. If you wish to get yourself a solid financial plan that tells you how much to invest, where to invest and for how long to invest for your financial goals, you can contact me for professional advice.

Here is how to contact me:

  • Go through the Services Page to see how I create your financial plan and use the form (at the end of the page) to contact me
  • Contact me directly using this form

As you must have realized, just knowing where to invest Rs 5000 every month is not enough. You need to know how much to invest in SIP to achieve your financial goals and then, invest in a more structured goal-based manner to live a financially fulfilling life that takes care of all your financial goals.

I will end this post now.

But before I do, let me tell you something important – SIP is no magic that will solve all your financial worries. Also, it does not guarantee high positive returns. But if you understand and believe in equity and the real power of compounding, I can assure you that taking the SIP route is your best bet to earn high returns offered by equity and that too in a limited monthly income that most people have. You have a real chance of getting very rich over time. And you don’t want to miss that. 🙂

Also please, don’t be under the impression that SIP is only for small investors. You can invest much more than just doing a SIP of 5000 per month.

You can go for (click links below for details):

By investing regularly via SIP in best mutual funds for long-term SIP investment, you can create a solid portfolio that earns inflation-beating returns without any hassles.

So…

Are you still thinking whether or not to start a SIP in equity mutual funds?

I would suggest you stop thinking and start acting now.

SIP is a wonderful tool available for investors who wish to create wealth in the long-run.

And more importantly, after reading this post, you have all the answers now. So you don’t need to wonder what would happen if I invest 5000 a month in mutual funds.

You know exactly how much wealth your small regular systematic investments can create. So start investing if you still haven’t, or increase your SIP investments if you are already investing Rs 5000 per month in mutual fund SIP. Over the long term, you will do incredibly well.

Invest 10000 month SIP

Invest Rs 10000 per month SIP Mutual Funds

Invest 10000 month SIP

Do you wish to know where and how best to invest Rs 10000 per month?

Then you are at the right place.

Investing in mutual funds is one of the best ways to begin your wealth creation journey. And if you have already decided to invest 10000 per month in mutual fund SIP, then its all the more better.

Why do I say so?

Because it’s well proven; I have benefited from it greatly myself and also because I can share a real life proof of how one person used SIP investing to create a portfolio of multiple crores.

SIP or Systematic Investment Plans are simple – invest a fixed sum in mutual funds at a regular frequency (generally monthly). Since most common investors are incapable of making big lump sum investments, SIP makes it easy for such people to make small regular investments every month using their monthly salaries without feeling burdened.

Once you have decided to invest a sum of Rs 10000 every month regularly, I am sure that you would be curious to know how much money you will have when you invest Rs 10000 a month in mutual funds for several years?

Right?

So let’s do some basic calculations:

Value of Rs 10000 per month SIP

Historical SIP returns of good mutual funds have been between 12-18%. The actual returns might differ for different investors. But for this discussion, let’s be conservative and assume the average SIP returns in 10, 15 or 20 years to be 12% per annum.

Here is what a Rs 10000 per month SIP in mutual funds can do over the years:

  • 5 year SIP of Rs 10000 monthly = Rs 8.5 lakh
  • 10 year SIP of Rs 10000 monthly = Rs 23 lakh
  • 15 year SIP of Rs 10000 monthly = Rs 50 lakh
  • 20 year SIP of Rs 10000 monthly = Rs 96 lakh
  • 25 year SIP of Rs 10000 monthly = Rs 1.79 crore
  • 30 year SIP of Rs 10000 monthly = Rs 3.24 crore

Wow!

Those are some big numbers…atleast towards the end. And the picture becomes clearer when you compare these figures with the actual investments made:

  • 5 year = Rs 10,000 x 12 x 5 = Rs 6 lakh
  • 10 year = Rs 10,000 x 12 x 10 = Rs 12 lakh
  • 15 year = Rs 10,000 x 12 x 15 = Rs 18 lakh
  • 20 year = Rs 10,000 x 12 x 20 = Rs 24 lakh
  • 25 year = Rs 10,000 x 12 x 25 = Rs 30 lakh
  • 30 year = Rs 10,000 x 12 x 30 = Rs 36 lakh

The route of SIP investing can create a lot of wealth for you.

And just notice this – If you invest Rs. 10,000 per month via SIP for 10 years, you are actually just investing about Rs 12 lakh. But return you are getting is around Rs 23-24 lakh. It is double of what you originally invested over the 10-year period. And the longer you keep investing, the better the returns get!

So just imagine the kind of wealth you can create if you start investing early on in your career (let’s say at age 25-30) and continue till 60. Your monthly investments of Rs 10,000 in equity funds can grow into Rs 3.5 crore in 30 years! This is the magic of compounding at play.

Compared with other options like fixed deposits, PF, etc. (where you won’t get more than 7-8% returns), equity funds are great for real inflation-beating wealth creation.

And at the cost of sounding repetitive, I would say that starting early is unimaginably important. Here is something (very detailed) I wrote about the huge cost of delay in investing. It’s about two friends who start investing at different ages of 25 and 35. You will be shocked to see the difference in the final corpus they create. Do read it!

Real Example – SIP of Rs 10,000 in Good Mutual Funds

The calculations shared above were done using simple SIP calculator (using fixed average returns of 12%). But in reality, the returns fluctuate and neither stock markets nor mutual fund NAVs move in straight lines.

So let’s use some real life SIP examples instead.

Let’s see what would have happened if you would have started investing Rs 10,000 every month via SIP in some good mutual funds years back:

Note – The choice of fund(s) or fund house is just for sharing the concept. It should not be construed as an investment recommendation.

Starting January 2000, if you had invested Rs 10000 per month in HDFC Top 200, HDFC Equity and HDFC Prudence, your actual total investment in each would have been about Rs 21.1 lac (up to July 2017).

And the value of your investments would be…

….hold your breath….

  • Rs 1.74 crore in HDFC Top 200 Fund
  • Rs 1.86 crore in HDFC Equity Fund
  • Rs 1.63 crore in HDFC Prudence Fund

Read those figures again. 🙂

We often think it’s difficult to get rich. The above examples prove otherwise.

Investing in mutual fund SIPs can make you a SIP crorepati even with a normal income! No need for a rich father. 🙂

How to get Rs 1 crore in 20 years? The answer is to invest 10000 every month. How to get Rs 1 crore in 15 years? The answer is to invest Rs 20000 every month.

So now you have answers to your questions like how to become a crorepati by SIP. 🙂

But…

Don’t you feel something is odd in this discussion till now?

There is. And let me highlight it for you –

There is absolutely no need to keep investing just the originally decided amount of Rs 10000 per month for 20-30 years. Your income would increase every year. So your investments too should increase accordingly. Isn’t it?

A Rs 10000 per month investment for 17 years resulted in Rs 1.6-1.8 crore. Just imagine what would have happened if you had decided to go for a Step Up SIP? An SIP that increases every year in line with your income. So for example, it can be Rs 10000 in the first year, followed by 11,000 per month in next year, 12,000 per month in 3rd year and so on…. (i.e., increasing SIP by Rs 1000 every year).

If you want to start a SIP, always keep in mind that you can create ‘more’ wealth if you are able to increase the SIP every year.

Now ofcourse I have chosen funds that help me prove my point. And there have been several other bad funds too where a systematic investment strategy would have resulted in much lower SIP returns. But I am trying to highlight the potential of serious wealth creation here. And if you believe in the power of equity, then for most common people, the best way to invest regularly in equity is to do it via mutual fund SIPs.

Model SIP Mutual Fund Portfolio

If you wish to create a portfolio of mutual funds by investing in a SIP of 10000 per month, it’s suggested not to have too many funds. Going for just 2-3 funds is more than enough.

Depending on one’s risk profile, some possible combinations are:

  • Rs 5000 each in two Large Cap funds
  • Rs 5000 Large Cap fund + Rs 5000 Balanced fund
  • Rs 7000 Large Cap fund + Rs 3000 Mid&Small Cap fund
  • Rs 5000 in Large Cap Fund + Rs 5000 in Flexi/Multi Cap Fund
  • Rs 5000 Large Cap fund + Rs 3000 Balanced fund + Rs 2000 Mid&Small Cap fund
  • Rs 5000 Balanced fund + Rs 3000 Mid&Small Cap fund + Rs 2000 Large cap fund
  • Rs 5000 Index Fund + Rs 5000 Balanced fund

There can be an infinite number of combinations. Suitability of SIP portfolio will differ from one investor to other. If you are not sure about where to invest or are looking for the best SIP for Rs 10000 per month, it’s better to take help of an investment advisor (you can contact me too).

Note – It’s assumed that if investing Rs 10000 in equity funds, you have already taken care of debt investments (via PF, PPF, etc.) in accordance with your asset allocation based investment plan. It is also assumed that you wish to invest for at least 5 years. Anything lower (like 2-3 years) and you should go for debt options or have a very small percentage in equities.

SIPs are really helpful when it comes to investing in equity without much effort or stress. But SIPs can be helpful when it comes to goal based investing too.

I have already written at length as to how setting goals can help better manage investments.

It is always advisable to attach a goal to your investments. It helps keep you motivated and stick with the investment plan for long enough. And this is exactly how the remarkably powerful goal based financial planning works.

You can easily use SIPs to plan for all your goals (Download FREE Financial Goal Excel Worksheet here) and then invest regularly to achieve them. Goals like saving for children’s education, children’s marriage, saving for your house purchase, foreign trips, etc. can be done easily and efficiently through systematic investment plans of mutual funds.

And why leave the biggest financial goal of them all?

You can even do retirement planning or early retirement planning using mutual funds. In addition to the mandatory savings you do for your retirement (via EPF or PPF), you can use SIPs to create a good retirement mutual fund portfolio. Investing in mutual funds for retirement is a no-brainer if you don’t want to run out of money before you die.

Need Help?

As a professional investment advisor, I do help investors create goal-based financial plans to achieve their real financial goals. If you wish to get yourself a solid financial plan that tells you how much to invest, where to invest and for how long to invest for your financial goals, you can contact me for professional advice.

Here is how to contact me:

  • Go through the Services Page to see how I create your financial plan and use the form (at the end of the page) to contact me
  • Contact me directly using this form

As you must have realized, just knowing where to invest Rs 10000 every month is not enough. You need to know how much to invest in SIP to achieve your financial goals and then, invest in a more structured goal-based manner to live a financially fulfilling life that takes care of all your financial goals.

I will end this post now.

But before I do, let me tell you something important – SIP is no magic that will solve all your financial worries. Also, it does not guarantee high positive returns. But if you understand and believe in equity and the real power of compounding, I can assure you that taking the SIP route is your best bet to earn high returns offered by equity and that too in a limited monthly income that most people have. You have a real chance of getting very rich over time. And you don’t want to miss that. 🙂

Also please, don’t be under the impression that SIP is only for small investors. You can invest much more than just doing a SIP of 10000 per month.

You can go for (click links below for details):

Or if you want to know how much wealth you can create by investing lesser amounts, then use below links:

By investing regularly via SIP in best mutual funds for long term SIP investment, you can create a solid portfolio that earns inflation-beating returns without any hassles.

So…

Are you still thinking whether or not to start a SIP in equity mutual funds?

I would suggest you stop thinking and start acting now.

You have all the answers now… and don’t need to wonder what would happen if I invest 10000 a month in mutual funds.

You know exactly how much wealth your small regular systematic investments can create. So start investing if you still haven’t; or increase your SIP investments if you are already investing Rs 10000 per month in mutual fund SIP. Over long-term, you will do incredibly well.

Invest 15000 month SIP

Invest Rs 15000 per month SIP Mutual Funds

Invest 15000 month SIP

Do you wish to know where and how best to invest Rs 15000 per month?

Then you are at the right place.

Investing in mutual funds is one of the best ways to begin your wealth creation journey. And if you have already decided to invest 15000 per month in mutual fund SIP, then its all the more better.

Why do I say so?

Because it’s well proven; I have benefited from it greatly myself and also because I can share a real life proof of how one person used SIP investing to create a portfolio of multiple crores.

SIP or Systematic Investment Plans are simple – invest a fixed sum in mutual funds at a regular frequency (generally monthly). Since most common investors are incapable of making big lump sum investments, SIP makes it easy for such people to make small regular investments every month using their monthly salaries without feeling burdened.

Once you have decided to invest a sum of Rs 15000 every month regularly, I am sure that you would be curious to know how much money you will have when you invest Rs 15000 a month in mutual funds for several years?

Right?

So let’s do some basic calculations:

Value of Rs 15000 per month SIP

Historical SIP returns of good mutual funds have been between 12-18%. The actual returns might differ for different investors. But for this discussion, let’s be conservative and assume the average SIP returns in 10, 15 or 20 years to be 12% per annum.

Here is what a Rs 15000 per month SIP in mutual funds can do over the years:

  • 5 year SIP of Rs 15000 monthly = Rs 12.8 lakh
  • 10 year SIP of Rs 15000 monthly = Rs 35 lakh
  • 15 year SIP of Rs 15000 monthly = Rs 75 lakh
  • 20 year SIP of Rs 15000 monthly = Rs 1.4 crore
  • 25 year SIP of Rs 15000 monthly = Rs 2.7 crore
  • 30 year SIP of Rs 15000 monthly = Rs 4.8 crore

Wow!

Those are some big numbers…atleast towards the end. And the picture becomes clearer when you compare these figures with the actual investments made:

  • 5 year = Rs 15,000 x 12 x 5 = Rs 9 lakh
  • 10 year = Rs 15,000 x 12 x 10 = Rs 18 lakh
  • 15 year = Rs 15,000 x 12 x 15 = Rs 27 lakh
  • 20 year = Rs 15,000 x 12 x 20 = Rs 36 lakh
  • 25 year = Rs 15,000 x 12 x 25 = Rs 45 lakh
  • 30 year = Rs 15,000 x 12 x 30 = Rs 54 lakh

The route of SIP investing can create a lot of wealth for you.

And just notice this – If you invest Rs. 15,000 per month via SIP for 10 years, you are actually just investing about Rs 18 lakh. But return you are getting is around Rs 35-36 lakh. It is double of what you originally invested over the 10-year period. And the longer you keep investing, the better the returns get!

So just imagine the kind of wealth you can create if you start investing early on in your career (let’s say at age 25-30) and continue till 60. Your monthly investments of Rs 15,000 in equity funds can grow into Rs 4.8 crore in 30 years! This is the magic of compounding at play.

Compared with other options like fixed deposits, PF, etc. (where you won’t get more than 7-8% returns), equity funds are great for real inflation-beating wealth creation.

And at the cost of sounding repetitive, I would say that starting early is unimaginably important. Here is something (very detailed) I wrote about the huge cost of delay in investing. It’s about two friends who start investing at different ages of 25 and 35. You will be shocked to see the difference in the final corpus they create. Do read it!

Real Example – SIP of Rs 15000 in Good Mutual Funds

The calculations shared above were done using simple SIP calculator (using fixed average returns of 12%). But in reality, the returns fluctuate and neither stock markets nor mutual fund NAVs move in straight lines.

So let’s use some real life SIP examples instead.

Let’s see what would have happened if you would have started investing Rs 15,000 every month via SIP in some good mutual funds years back:

Note – The choice of fund(s) or fund house is just for sharing the concept. It should not be construed as an investment recommendation.

Starting January 2000, if you had invested Rs 15,000 per month in HDFC Top 200, HDFC Equity and HDFC Prudence, your actual total investment in each would have been about Rs 31.6 lac (up to July 2017).

And the value of your investments would be…

….hold your breath….

  • Rs 2.61 crore in HDFC Top 200 Fund
  • Rs 2.79 crore in HDFC Equity Fund
  • Rs 2.44 crore in HDFC Prudence Fund

Read those figures again. 🙂

We often think it’s difficult to get rich. The above examples prove otherwise.

Investing in mutual fund SIPs can make you a SIP crorepati even with a normal income! No need for a rich father. J How to get Rs 1 crore in 20 years? The answer is to invest 10000 every month. How to get Rs 1 crore in 15 years? The answer is to invest Rs 20000 every month.

So now you have answers to your questions like how to become a crorepati by SIP. 🙂

But…

Don’t you feel something is odd in this discussion till now?

There is. And let me highlight it for you –

There is absolutely no need to keep investing just the originally decided amount of Rs 15,000 per month for 20-30 years. Your income would increase every year. So your investments too should increase accordingly. Isn’t it?

A Rs 15000 per month investment for 17 years resulted in Rs 2.4-2.8 crore. Just imagine what would have happened if you had decided to go for a Step Up SIP? An SIP that increases every year in line with your income. So for example, it can be Rs 15,000 in the first year, followed by 17,000 per month in next year, 19,000 per month in 3rd year and so on…. (i.e., increasing SIP by Rs 2000 every year).

If you want to start a SIP, always keep in mind that you can create ‘more’ wealth if you are able to increase the SIP every year.

Now ofcourse I have chosen funds that help me prove my point. And there have been several other bad funds too where a systematic investment strategy would have resulted in much lower SIP returns. But I am trying to highlight the potential of serious wealth creation here. And if you believe in the power of equity, then for most common people, the best way to invest regularly in equity is to do it via mutual fund SIPs.

Model SIP Mutual Fund Portfolio

If you wish to create a portfolio of mutual funds by investing in a SIP of 15000 per month, it’s suggested not to have too many funds. Going for just 2-3 funds is more than enough.

Depending on one’s risk profile, some possible combinations are:

  • Rs 7500 each in two Large Cap funds
  • Rs 5000 Large Cap fund + Rs 10000 Balanced fund
  • Rs 10000 Large Cap fund + Rs 5000 Mid&Small Cap fund
  • Rs 7500 in Large Cap Fund + Rs 7500 in Flexi/Multi Cap Fund
  • Rs 7000 Large Cap fund + Rs 5000 Balanced fund + Rs 3000 Mid&Small Cap fund
  • Rs 5000 Balanced fund + Rs 5000 Mid&Small Cap fund + Rs 5000 Large cap fund
  • Rs 10000 Index Fund + Rs 5000 Balanced fund

There can be an infinite number of combinations. Suitability of SIP portfolio will differ from one investor to other. If you are not sure about where to invest or are looking for the best SIP for Rs 15000 per month, it’s better to take help of an investment advisor (you can contact me too).

Note – It’s assumed that if investing Rs 15000 in equity funds, you have already taken care of debt investments (via PF, PPF, etc.) in accordance with your asset allocation based investment plan. It is also assumed that you wish to invest for at least 5 years. Anything lower (like 2-3 years) and you should go for debt options or have a very small percentage in equities.

SIPs are really helpful when it comes to investing in equity without much effort or stress. But SIPs can be helpful when it comes to goal based investing too.

I have already written at length as to how setting goals can help better manage investments.

It is always advisable to attach a goal to your investments. It helps keep you motivated and stick with the investment plan for long enough. And this is exactly how the remarkably powerful goal based financial planning works.

You can easily use SIPs to plan for all your goals (Download FREE Financial Goal Excel Worksheet here) and then invest regularly to achieve them. Goals like saving for children’s education, children’s marriage, saving for your house purchase, foreign trips, etc. can be done easily and efficiently through systematic investment plans of mutual funds.

And why leave the biggest financial goal of them all?

You can even do retirement planning or early retirement planning using mutual funds. In addition to the mandatory savings you do for your retirement (via EPF or PPF), you can use SIPs to create a good retirement mutual fund portfolio. Investing in mutual funds for retirement is a no-brainer if you don’t want to run out of money before you die.

Need Help?

As a professional investment advisor, I do help investors create goal-based financial plans to achieve their real financial goals. If you wish to get yourself a solid financial plan that tells you how much to invest, where to invest and for how long to invest for your financial goals, you can contact me for professional advice.

Here is how to contact me:

  • Go through the Services Page to see how I create your financial plan and use the form (at the end of the page) to contact me
  • Contact me directly using this form

As you must have realized, just knowing where to invest Rs 15,000 every month is not enough. You need to know how much to invest in SIP to achieve your financial goals and then, invest in a more structured goal-based manner to live a financially fulfilling life that takes care of all your financial goals.

I will end this post now.

But before I do, let me tell you something important – SIP is no magic that will solve all your financial worries. Also, it does not guarantee high positive returns. But if you understand and believe in equity and the real power of compounding, I can assure you that taking the SIP route is your best bet to earn high returns offered by equity and that too in a limited monthly income that most people have. You have a real chance of getting very rich over time. And you don’t want to miss that. 🙂

Also please, don’t be under the impression that SIP is only for small investors. You can invest much more than just doing a SIP of 15,000 per month.

You can go for (click links below for details):

Or if you wish to invest a smaller amount, you can even check the below link:

By investing regularly via SIP in best mutual funds for long term SIP investment, you can create a solid portfolio that earns inflation-beating returns without any hassles.

So…

Are you still thinking whether or not to start a SIP in equity mutual funds?

I would suggest you stop thinking and start acting now.

You have all the answers now… and don’t need to wonder what would happen if I invest 15000 a month in mutual funds.

You know exactly how much wealth your small regular systematic investments can create. So start investing if you still haven’t; or increase your SIP investments if you are already investing Rs 15000 per month in mutual fund SIP. Over long-term, you will do incredibly well.

Invest 20000 month SIP

Invest Rs 20000 per month in SIP Mutual Fund

Invest 20000 month SIP

Are you planning to invest Rs 20000 per month? Or for that matter, you have already decided to invest 20000 per month in mutual fund SIP?

If yes, then please read on.

Investing Rs 20000 every month means different things to different people. For those with a salary of Rs 50,000, it means a lot (40% of salary). But for someone with Rs 3 lac monthly income, it’s next to nothing (~7% of income)!

In any case, investing in mutual fund SIP is a good decision and you will create a lot of wealth.

Why do I say so?

Because it’s well proven; I have benefited from it greatly myself and also because there are several real life proofs for this (like this one where one person used SIP to create a portfolio of multiple crores).

SIP or Systematic Investment Plan is simple – Invest a fixed sum in mutual funds at a regular frequency (mostly monthly). Since most people are incapable of making big lump sum investments, SIP makes it easy for these people to make small and regular investments every month using their monthly salaries.

Now once you have decided to go ahead with your investment plan, my guess is that your main concern would be to know how much you will have if you invest Rs 20000 every month for several years?

Right?

So let’s do some basic calculations:

Value of Rs 20000 per month Mutual Fund SIP

If you check the historical SIP returns of good mutual funds, you will find that returns have been in the range of 12 to 18%. But let’s be conservative and assume that the average SIP returns in 10, 15 or 20 years will be about 12% per annum.

So here is what a Rs 20000 monthly Systematic Investment Plan can do over the years:

  • 5 year SIP of Rs 20000 monthly = Rs 17 lakh
  • 10 year SIP of Rs 20000 monthly = Rs 47 lakh
  • 15 year SIP of Rs 20000 monthly = Rs 1 crore
  • 20 year SIP of Rs 20000 monthly = Rs 1.9 crore
  • 25 year SIP of Rs 20000 monthly = Rs 3.5 crore
  • 30 year SIP of Rs 20000 monthly = Rs 6.4 crore

Wow!

Those are some big numbers…at least towards the end.

And the picture becomes clearer when you compare these numbers with the actual investments made:

  • 5 year = Rs 20,000 x 12 x 5 = Rs 12 lakh
  • 10 year = Rs 20,000 x 12 x 10 = Rs 24 lakh
  • 15 year = Rs 20,000 x 12 x 15 = Rs 36 lakh
  • 20 year = Rs 20,000 x 12 x 20 = Rs 48 lakh
  • 25 year = Rs 20,000 x 12 x 25 = Rs 60 lakh
  • 30 year = Rs 20,000 x 12 x 30 = Rs 72 lakh

Stunning! Isn’t it?

The route of SIP investing can create a lot of wealth for you.

And just notice that if you invest Rs. 20,000 per month via SIP for 10 years, you are actually investing about Rs 24 lakh. But in return, you are getting around Rs 47-48 lakh. It is double of what you originally invested over the 10-year period.

So just imagine the kind of wealth you can create if you start investing early on in your career (let’s say at age 25-30) and continue till 60. Your monthly investments of Rs 20,000 in equity funds can grow into Rs 6.4 crore in 30 years! This is the magic of compounding at play.

Compared with other options like fixed deposits, PF, etc. (where you won’t get more than 7-8% returns), equity funds are great for real inflation-beating wealth creation.

And at the cost of sounding repetitive, I would say that starting early is unimaginably important. Here is a detailed post that I did to highlight the huge cost of delay in investing. It’s about two friends who start investing at different ages of 25 and 35. You will be shocked to see the difference in the final corpus they create. Do read it!

Real Example – SIP of Rs 20000 in Good Mutual Funds

The calculations above were done using simple SIP calculator (assuming 12% average returns). But in reality, neither stock markets nor mutual fund NAVs move in straight lines. The returns fluctuate and don’t follow straight lines.

So here are some real life SIP examples to show how much you would have if you had started investing Rs 20,000 a month via SIP in good funds years back:

Note – The choice of fund(s) or fund house is just for sharing the concept. It should not be construed as an investment recommendation.

Starting from January 2000, if you had invested Rs 20,000 per month in HDFC Top 200, HDFC Equity and HDFC Prudence, your actual total investment in each would have been about Rs 42.2 lac (up to July 2017).

And the value of your investments would be…

….hold your breath….

  • Rs 3.48 crore in HDFC Top 200 Fund
  • Rs 3.72 crore in HDFC Equity Fund
  • Rs 3.26 crore in HDFC Prudence Fund

Read those figures again. 🙂

These have been achieved in little over 17 years!

We often think it’s difficult to get rich. But the above examples prove otherwise.

Investing in mutual fund SIPs can make you a SIP crorepati even with a normal income. How to get Rs 1 crore in 15 years? The answer is to invest Rs 20000 every month. Can’t invest that much? No worries. If you invest Rs 10000 every month, you can still get to Rs 1 crore in 20 years. So if you were looking for an answer to how to become crorepati by SIP, I assume you have your answers now. 🙂

But…

Don’t you feel something is odd in this discussion till now?

There is. And let me highlight it for you –

There is absolutely no need to keep investing just the originally decided amount of Rs 20000 per month for 20-30 years. Your income would increase every year. So your investments should increase too. Isn’t it? Now a Rs 20000 per month investment for 17 years resulted in Rs 3.2-3.8 crore. Just imagine what would have happened if you had decided to go for a Step Up SIP? An SIP that increases every year in line with your income. So for example, it can be Rs 20000 in the first year, followed by SIP of 25,000 per month in next year, SIP of 30,000 per month in 3rd year and so on…. (i.e., increasing SIP by Rs 5000 every year).

I hope you get the picture. 🙂

If you are planning to start a SIP, just remember that you can create ‘more’ wealth if you are able to increase the SIP amount every year.

Now ofcourse I have chosen funds that help me prove my point. And there would be several other bad funds too where a systematic investment strategy would have resulted in much lower SIP returns.

But I am trying to highlight the potential of serious wealth creation here. And if you believe in the power of equity, then for most common people, the best way to invest regularly in equity is to do via mutual fund SIPs.

Model SIP Mutual Fund Portfolio

If you wish to create a portfolio of mutual funds by doing a SIP of 20000 per month, it’s suggested not to have too many funds. Going for just 2-4 funds is more than enough.

Depending on one’s risk profile, some possible combinations are:

  • Rs 10000 each in two Large Cap funds
  • Rs 10000 Large Cap fund + Rs 10000 Balanced fund
  • Rs 7500 each in two Large Cap funds + Rs 5000 Mid&Small Cap fund
  • Rs 10000 in Large Cap Fund + Rs 10000 in Flexi/Multi Cap Fund
  • Rs 10000 Large Cap fund + Rs 5000 Balanced fund + Rs 5000 Mid&Small Cap fund
  • Rs 10000 Balanced fund + Rs 6000 Mid&Small Cap fund + Rs 4000 Large cap fund
  • Rs 10000 Index Fund + Rs 10000 Balanced fund

There can be an infinite number of combinations. Suitability of SIP portfolio will differ from one investor to other.

If you are not sure about where to invest or looking for the best SIP for Rs 20000 per month, it’s better to take help of an investment advisor.

Note – It’s assumed that if investing Rs 20000 in equity funds, you have already taken care of debt investments (via PF, PPF, debt funds, etc.) in accordance with your asset allocation based investment plan. It is also assumed that you wish to invest for at least 5 years. Anything lower (like 2-3 years) and you should go for debt options or have a very small percentage in equities.

SIPs are really helpful when it comes to investing in equity without much effort or stress. But SIPs can be helpful when it comes to goal based investing too.

I have already written at length as to how setting goals can help better manage investments.

In fact, it’s the basis of how the remarkably powerful and useful goal based financial planning works.

You can easily use SIPs to plan for all your goals (download free financial goal worksheet here) and then invest regularly to achieve them. Goals like saving for children’s education, children’s marriage, saving for your house purchase, foreign trips, etc. can be done easily and efficiently through systematic investment plans of mutual funds.

And why leave the biggest goal of them all?

You can even do your retirement planning or early retirement planning using mutual funds. In addition to the mandatory savings you do for your retirement (via EPF or PPF), you can use SIPs to create a good retirement mutual fund portfolio too. Investing in mutual funds for retirement is a no-brainer if you don’t want to run out of money before you die.

Need Help?

As a professional investment advisor, I do help investors create goal-based financial plans to achieve their real financial goals. If you wish to get yourself a solid financial plan that tells you how much to invest, where to invest and for how long to invest for your financial goals, you can contact me for professional advice.

Here is how to contact me:

  • Go through the Services Page to see how I create your financial plan and use the form (at the end of the page) to contact me
  • Contact Me Directly using this form

As you must have realized by now, just knowing where to invest Rs 20000 every month is not enough. You need to invest according to your financial goals to actually live a financially fulfilling life.

I will end this post now.

But before I do, let me tell you something important – SIP is no magic that will solve all your financial worries. Also, it does not guarantee high positive returns. But in order to earn high returns offered by equity and that too on a limited monthly income that most people have, taking the SIP route is the best bet.

And please, don’t be under the impression that SIP is only for small investors. You can invest much more than just doing a SIP of 20000 per month. 🙂 You can go for (click links below for details):

Or if you want to know how much wealth you can create by investing lesser amounts, then use below links:

By investing regularly via SIP in the best mutual funds for long term SIP investment, you can create a solid portfolio that earns inflation-beating returns without any hassles.

So…

Are you still thinking whether or not to start a SIP in equity mutual funds?

I would suggest you stop thinking and start acting now.

You have all the answers now and don’t need to wonder what would happen if I invest 20000 a month in mutual funds. You know exactly how much wealth your small regular systematic investments can create. So start investing if you still haven’t; or increase your SIP investments if you are already investing 20000 monthly in mutual fund SIP. Over long-term, you will do incredibly well.