Empirical evidence proves that the long-term SIP generates high double digit returns. This is due to various reasons.A lot of investors often wonder how many years is long enough. And what if we invest for a longer duration and in the end we find markets at the wrong end of the cycle.Systematic Investment Plans is periodic investment in a mutual funds schemes.
For this let us understand the mechanism of SIP(Systematic Investment Plans)and how it works. As we all know SIP (Systematic Investment Plans) gives an auto mechanism of investing a fixed amount regardless of the NAV. Investors buy more units when the markets are low. And vice versa. This is also called rupee cost averaging.
Now imagine a 15-20-year period, let’s look at period between the year 2000 and 2016. In the year 2000 BSE Sensex was over 6000. Imagine a SIP started in the year 2000. In the year 2002 Sensex tanked to 2200. In 2005 it peaked again crossing 6000. It kept on scaling new peaks but with intermediate corrections going up to 25%. Between 2005 and 2008 there were over 33 corrections of over 10%. And in the year 2007 Dec it crossed 20000. In Nov 2008 it was 9000 and remained so till early May 2009. It breached 20000 again in Nov 2010. And went back to 15k levels and stayed there for a considerable period. It started rising and crossed 20000 again with the new Modi government. It breached 30k in mid-2015 and touched around 22k in Feb 2016. And as on June 2016 it is nearing 27000.
This shows that a sip for a short period let’s say 2-3 years is less likely to make money then an investment for over 15 years. As several businesses, economic and political cycles get factored in. And all the crests and curves of the stock market begin to favour the investor.
This also solves the problem of the risk management. Which however is huge in a onetime investment. So Risk mitigation is inherent in a long term sip. Lastly, a long term sip gives huge benefits of compounding.
To conclude, Long term sips will mitigate risk. Compound your money on long term and it may be able to generate a double digit IRR. MutualFundWala is one of the best mutual fund advisorthat recommends long term SIP investments. For best systematic investment planor to invest money in sip mutual fund just give us a call at: 9891237575 or email us at: firstname.lastname@example.org .