“SIgaram” in Tamil means Peak, Pinnacle, Glory etc.
Systematic Investing (SIP) in Equity Mutual Funds is one of the simplest, easiest and proven methods advocated by Financial Pundits across the globe for accumulating wealth in the long term.
Hence, we at PenguWIN, decided to dedicate a separate page in this website on this festival day of Pongal and Makar Sankranti 2015 to share interesting insights on Systematic Investments in Mutual Funds which we are referring as “SIgaram” aka “SIP Kodeeswaran” (SIP Crorepati).
This page is all about how to reach the “SIgaram” or Pinnacle or Glory with respect to your personal wealth in a simple, proven and systematic manner.
When it comes to Equity investing, SIPs provide multiple advantages over and above the discipline of regular investing:
- Rupee-Cost Averaging – Buying more when the market is lower and less when the market is higher thereby reducing the average price per unit in long term.
- Control the greed – Based on past investment pattern, people typically try to invest more when the market is moving up and reduce or stop when the market tanks.
- Achieve a financial Goal – If you want to save for your dream home which costs 1 Crore, 10 years from now, then you need to save about 34k per month.
- Doing it effortlessly – You don’t need to write cheques on a regular basis or move money from one account to another – Just a single cheque will do to set up an auto debit from your Bank Account and that’s it.
- Power of Compounding – No wonder why the great Scientist Albert Einstein once noted that “The most powerful force in the universe is the principle of compounding”
The following tables gives the performance details of Systematic Investment Plans for periods of 7, 10 and 15 Years.
Average returns pertains to the average of all the diversified equity funds in the market as of Dec 2014. Historical returns have been fantastic, but for calculation purposes, I propose to assume a conservative return of 16% CAGR
The following table provides a view on how much wealth you will be able to create by enrolling into an Equity MF SIP
$ Wealth accumulated over a Crore is highlighted in Orange. You will observe that 16% compounded annualized growth multiples your wealth 1.8 times in 7 years (please remember that you are not making the investment upfront and doing it every month for the entire tenure), 2.4 times in 10 years, 4.1 times in 15 years, 7.2 times in 20 years. The longer you invest the more wealth you will be able to accumulate.
Another important aspect of long term wealth creation through equity investments is what Financial Experts refer as the “Time in the Market and not Timing the Market”. What this means is its more important to stay invested in the market for long periods to enjoy the fruits of equity rather than try to time the market by waiting for corrections to happen.
You would have observed in the media that quite a number of people have climbed “Sigaram Everest” (Mt. Everest). How has this been possible? Meticulous training, practice and perseverance has made something which was considered impossible in the past as very much possible.
Similarly, attaining a Corpus of 1 Crore and above which might sound to be a tall figure, especially for people who have started the career, is actually quite simple and very much possible through disciplined and systematic investing.
The following section gives an overview as how you can reach your SIgaram’s or goals of personal wealth accumulation which we are referring as SIgaram 1C (1 Crore), SIgaram 3C, SIgaram 5C and SIgaram 10C
Now that we have understood the benefits of systematic investing, what are the typical funds that we can invest to achieve the Sigaram?
- Large Cap Diversified Equity Funds
- Mid Cap Diversified Equity Funds
- Small Cap Diversified Equity Funds
- ELSS Funds
- Balanced Funds
Large Cap, Mid Cap and Small Cap refers to the investment style of the fund where the risk is relatively lower in Large Cap and higher in Small Cap. Since returns commensurate with the risks, the return potential is higher for Small Cap and lower for Large Cap Funds and somewhere in the middle for Mid Cap Funds.
Balanced funds have the least amount of volatility and risk among the above but the returns will also be slightly lower; recommended for conservative investors who want to invest in Equity
For people who want to combine the benefits of Long Term Wealth Creation and Tax Savings, systematic in ELSS funds are suitable.
For people who want to start investing through MFs and don’t understand the nuances, SIPs in Large Cap Diversified funds is the best way to accumulate long term wealth.
Systematic Transfer Plans
Systematic transfer plan or STP is a variant of SIP whereby instead of investing money from your Bank A/c on a periodic basis into a Fund, you park a lump sum amount in one of the liquid or short term funds and transfer the amount from this to the fund of choice where the investment is made. STPs come in handy when you want to park surplus amount in Liquid or Short term funds which typically gives over 8% returns, as on date, when compared to 4% saving interest in Banks
Bonus Earnings, Property Sale, Gifts from relatives and friends, Matured investments are typical scenarios when you can opt for STPs.
Last, but not the least, the wealth that you will accumulate through systematic investing in Equity Mutual Funds mentioned above is 100% tax free and you don’t need to part with anything to the taxman.
So, are you ready to plan and start the journey to reach your “Sigaram“?
Do reach out to PenguWIN for any help!!!
© 2023 – PenguWIN Wealth