K. ARAVIND
The recent trend is to increase investments in equity schemes of mutual funds through Systematic Investment Plans (SIPs). Investments through SIPs increase every month. At the same time, the average investment through SIP is only Rs.3,565 per month. Despite the increase in the number of SIP operators, this suggests that investing through SIPs is relatively small.
Equity mutual funds offer higher returns than any other investment option. But if only a very small amount is invested as SIP, the investment value will not increase significantly.
Let’s look at an example. Rajeev started SIP at the age of 40. With a salary of Rs.1 lakh, he set aside Rs.3,000 for SIP investment, just three per cent of the monthly salary. He continued to invest for 15 years. He earned 12 per cent per year. When he retired after 15 years, he got Rs.15.1 lakh. Of course, it is no small matter that a person who has invested only Rs.3,000 per month will get Rs.15 lakh in 15 years.
But for Rajiv, who is retiring at the age of 55, Rs.15 lakh a month is not enough to cover his monthly income after retirement. Moreover, Rajiv received only a small amount of money through 15 years of SIP as compared to the amount received by investing in other fixed income schemes like EPF for 30-35 years. This is because he invested only three per cent of his monthly income through SIP.
It is common for investors to invest the same amount over a long period of time through SIPs and not increase the SIP amount as the return on income increases. This will also prevent us from getting enough investment to achieve our goals.
If a person who has invested Rs.10,000 a month through SIP for 15 years gets 12 per cent return per annum, he/she will get Rs.50.5 lakh after 15 years. At the same time, if the SIP investment is increased by five per cent per annum in line with the salary increase, the result will be much greater. After 15 years, the return will be Rs.71 lakh. This additional benefit of looking to increase SIP investment in line with the increase in returns will be very beneficial in post-retirement planning.
We can only get enough money to achieve our goals if we pay attention to investing a sufficient amount instead of SIP considering only the rate of return on investment. It should be noted that the amount allocated to SIP investments.
