SIP Can Create Huge Wealth!

 🚀 *SIP Can Create Huge Wealth!* 💰

Just look at this simple example:

📅 Monthly SIP: ₹5,000  

💼 Total Invested Over 30 Years: ₹18 lakh  

📈 Expected Returns: 19%  

💸 Final Amount: ₹9.13 Crore! 😲

Yes, just ₹5,000 a month could grow into *over 9 Crores* if you stay *disciplined and consistent* for 30 years.

🗝 *The secret? Time and Patience.*  

Stay invested. Let compounding do the magic! ✨

 #DontRetireRich

https://slfinancialservices.wylth.com/ 

Income funds score over fixed deposits

by Vidya Bala on February 19, 2013 in Mutual funds, Personal finance

For most investors, mutual funds mean investing in equities and therefore come tagged with risks.

Given this, for a risk-averse investor, there may be little choice left than to invest in plain vanilla bank fixed deposits. But did you know that a three-year deposit that you invested in 2010, for example, would not beat inflation (post tax), when you receive the maturity amount out in 2013? (Please see table below for returns).

What if you had a similar debt product that can deliver returns superior to fixed deposit returns and beat inflation? Would you not consider that?

If you are investing for not less than two years, then ‘income funds’ a class of debt mutual funds can deliver superior returns compared with bank deposits. That means you can earn a bit more than traditional debt avenues, by still staying invested in debt.

What are income funds and what makes them attractive?

Income funds
Income funds are a class of debt mutual funds that invest in a combination of government securities, certificates of deposits, corporate bonds and money market instruments. They are managed by expert fund managers who actively try to manage the portfolio based on interest rate movements, while at the same time keeping the portfolio credit worthy.

In other words, they seek to generate returns both in declining and rising interest rate scenarios by managing their portfolio actively. They either generate interest income by holding the instruments till maturity or manage gains by selling them in the debt market if the price of the instrument rallies well.

That means that these instruments will not guarantee you fixed returns like deposits. Yet, over the last 10 years, they have beaten three-year deposit rates, irrespective of the year in which you invested. Let us look at income funds’ features and how they score over fixed deposits.

Income fund advantages
• Highly liquid. Can with draw money anytime unlike fixed deposits that come with a fixed lock-in period
• Actively managed. Seek to generate returns from varying interest rate cycles. Fixed deposits, on the other hand, carry re-investment risk. When a deposit matures and is reinvested, you may fall into a low interest rate regime and get lower returns than before.
• Have historically generated superior returns than fixed deposits. Please see data given.
• Very tax efficient, especially for those in the 20% and 30% tax brackets. Long-term capital gains (for holding over one year) are taxed at 10% without indexation or 20% with indexation. Interest on fixed deposits, though, is taxed at your income slab. Please see table for post-tax returns
• Offers high flexibility. Besides investing systematically you can even withdraw money systematically thus generating regular cash flow for yourself.
How to use income funds
• Invest your money in a combination of traditional fixed income options such as deposits and income funds to pep overall returns. You need not put your money in one basket.
• When you build a mutual fund portfolio, consider investing over one half of your capital in income funds when you have a time frame of say 2-3 years
• Use income funds, along with equity funds, as part of a long-term asset allocation strategy to build wealth. Choose the growth option.
• You can use income funds to also provide for some monthly cash flows by opting for a systematic withdrawal plan after first holding it for at least two years.

Note: If you have a time frame of less than 18 months, there are other short-term debt schemes that mutual funds offer. Income funds will not fit a short time frame. Also, remember that income funds do not guarantee fixed returns nor are they covered by insurance as is the case with bank fixed deposits (up to Rs 1 lakh). To this extent, they do not top the safety chart.
However, for longer periods, the interest rate risks are taken care of, thus generating superior returns for the limited risks assumed.
Birla Sun Life Dynamic Bond fund, IDFC SSI Medium Term Plan A, Templeton India Income Opportunities and HDFC Medium Term Opportunities are some of the consistent performers in this category.

7 good reasons to invest in SIPs

Fact No. 1: Over a long term horizon, equity investments have given returns which far exceed those from the debt based instruments. They are probably the only investment option, which can build large wealth.Fact No. 2: In short term, equities exhibit very sharp volatilities, which many of us find difficult to stomach.   No. 3:Equities carry lot of risk even to the extent of loosing ones entire corpus. Fact No. 4:Investment in equities require one to be in constant touch with the market. Fact No. 5:Equity investment requires a lot of research. Fact No. 6: Buying good scrips require one to invest fairly large amounts.

Systematic Investing in a Mutual Fund is the answer to preventing the pitfalls of equity investment and still enjoying the high returns. And it makes all the more sense today when the stock markets are booming. (Also Read - 5 corners of a sound Investing Strategy)

1. It’s an expert’s field – Let’s leave it to them
Management of the fund by the professionals or experts is one of the key advantages of investing through a mutual fund. They regularly carry out extensive research  - on the company, the industry and the economy – thus ensuring informed investment. Secondly, they regularly track the market. Thus for many of us who do not have the desired expertise and are too busy with our vocation to devote sufficient time and effort to investing in equity, mutual funds offer an attractive alternative. (Read more -The Investors biggest Dilemma)  

2. Putting eggs in different baskets
Another advantage of investing through mutual funds is that even with small amounts we are able to enjoy the benefits of diversification. Huge amounts would be required for an individual to achieve the desired diversification, which would not be possible for many of us. Diversification reduces the overall impact on the returns from a portfolio, on account of a loss in a particular company/sector.

3. It’s all transparent & well regulated
The Mutual Fund industry is well regulated both by SEBI and AMFI. They have, over the years, introduced regulations, which ensure smooth and transparent functioning of the mutual funds industry. This makes it safer and convenient for investors to invest through the mutual funds. (Check out - Foolproof strategies to maximize your profits)

4. Market timing becomes irrelevant
One of the biggest difficulties in equity investing is WHEN to invest, apart from the other big question WHERE to invest. While, investing in a mutual fund solves the issue of ‘where’ to invest, SIP helps us to overcome the problem of ‘when’. SIP is a disciplined investing irrespective of the state of the market. It thus makes the market timing totally irrelevant. And today when the markets are high, it may not be prudent to commit large sums at one go. With the next 2-3 years looking good from Indian Economy point of view, one can expect handsome returns thru’ regular investing. 

5. Does not strain our day-to-day finances
Mutual Funds allow us to invest very small amounts (Rs 500 – Rs 1000) in SIP, as against larger one-time investment required, if we were to buy directly from the market. This makes investing easier as it does not strain our monthly finances. It, therefore, becomes an ideal investment option for a small-time investor, who would otherwise not be able to enjoy the benefits of investing in the equity market.

6. Reduces the average cost 
In SIP we are investing a fixed amount regularly. Therefore, we end up buying more number of units when the markets are down and NAV is low and less number of units when the markets are up and the NAV is high. This is called rupee-cost averaging. Generally, we would stay away from buying when the markets are down. We generally tend to invest when the markets are rising. SIP works as a good discipline as it forces us to buy even when the markets are low, which actually is the best time to buy. (Read more - Invest wisely and get rich with equity MFs)

7. Helps to fulfill our dreams
The investments we make are ultimately for some objectives such as to buy a house, children’s education, marriage etc. And many of them require a huge one-time investment. As it would usually not be possible raise such large amounts at short notice, we need to build the corpus over a longer period of time, through small but regular investments. This is what SIP is all about. Small investments, over a period of time, result in large wealth and help fulfill our dreams & aspirations.