If someone asks why the systematic investment plan (SIP) is so popular today, the answer is very simple – it brings ease of investing in mutual funds. The biggest advantage of SIP is that you don’t need to worry about market timing, and you can still build a large corpus in the long term by investing small amounts regularly.
SIP is often called a way to fulfill big dreams with small investments. SIP helps average out market fluctuations through rupee cost averaging. When SIPs are continued for a long period, the power of compounding works in investors’ favour, and their capital grows significantly.
In recent years, the equity market has delivered tremendous returns, and riding this wave, many SIP schemes have generated CAGR returns ranging from 28% to 37% over the last three years. Some of these funds belong to the mid-cap and small-cap categories, which have performed brilliantly despite their higher risk.
Here are top 5 SIP mutual funds (direct plan) which have delivered up to 37% annualised returns in 3 years:
1. Nippon India Taiwan Equity Fund
Nippon India Taiwan Equity Fund is an open-ended international equity scheme following Taiwan focused theme. The fund primarily invests in equity and equity-related securities of companies listed on the major stock exchanges of Taiwan.
Fund’s SIP return in 3 years
The fund has generated an annualised return of 37.3%, turning a Rs 10,000 monthly investment into Rs 6.09 lakh in just 3 years.
Return on lump sum investment in 3 years
Its 3-year return on lump sum investment over the last 3 years has been 30.30%. With this rate of return, a lump sum investment of Rs 1 lakh would be worth over Rs 2.2 lakh now in 3 years.
2. Bandhan Small Cap Fund
As the name suggests, the fund invests predominantly in equities and equity-linked securities of small-cap segment.
Fund’s SIP return in 3 years
The fund has delivered an impressive 29.57% CAGR to investors on SIP investment. An investment of Rs 10,000 in this fund over the last three years would have been Rs 5.50 lakh.
Return on lump sum investment in 3 years
The scheme has given a CAGR of 30.15% in 3 years. A lumpsum investment of Rs 1 lakh in this fund would be worth Rs 2.20 lakh.
3. Invesco India Mid Cap Fund
SIP returns in 3 years
The mid-cap fund has delivered a solid 29.58% CAGR over the last three years. This rate of return would have turned a Rs 10,000 SIP in this fund into Rs 5.50 lakh in 3 years.
Return on lump sum investment in 3 years
The fund’s 3-year return stood at 28.50% CAGR. A lump sum investment of Rs 1 lakh in this fund would be worth Rs 2.12 lakh in 3 years.
4. ICICI Prudential Pharma Healthcare and Diagnostics (P.H.D) Fund – Direct Plan
SIP returns in 3 years
The thematic fund has generated a 28.98% CAGR over the last three years, turning an SIP of Rs 10,000 into a corpus of Rs 5.46 lakh.
Return on lump sum investment in 3 years
The scheme has delivered a CAGR of 29.62% on lump sum investment in 3 years. A lump sum investment of Rs 1 lakh in this fund would have become Rs 2.18 lakh now.
5. Franklin India Opportunities Fund
SIP returns in 3 years
The fund has delivered a CAGR of 28.74% over the last 3 years. This rate of return on investment would have turned a Rs 10,000 monthly SIP investment into a corpus of Rs 5.44 lakh in this period.
Return on lump sum investment in 3 years
The scheme has delivered an impressive 29.95% CAGR over the last 3 years. A lump sum investment of Rs 1 lakh in this fund three years ago would be worth Rs 2.2 lakh by now.
(Data source: Value Research)
Benefits of SIP investment
Disciplined investment – Investing every month becomes a habit.
Freedom from market timing – The investor does not need to think about when the market will go up or down.
Benefit of compounding – Even small investments can create a large corpus in the long run.
Flexibility – If you want, you can stop, increase or decrease the SIP.
Fulfilling financial goals – SIP is best for big goals like retirement, children’s education or buying a house.
Understand the risks hidden in SIP
Market risk: Since SIP is mostly done in equity funds, the impact of market fall comes on NAV.
Short-term fluctuations: If the market falls in 2–3 years, the returns may be less than expected.
Risk of excessive aggression: Many investors do SIP only in midcap and smallcap funds, where the risk is higher.
Things to keep in mind while doing SIP
Keep the investment period long – have a view of at least 7–10 years.
Set financial goals – It should be clear why you are investing.
Understand the risk profile – Choose funds according to your age, income and risk tolerance.
Diversify – Don’t do SIP in only one category (such as smallcap), include largecap and multicap funds as well.
Use step-up SIP – A large corpus can be created in the long term by increasing the SIP amount every year.
Why not focus only on returns?
It is natural for investors to be interested in funds that have given returns of 28% to 37% CAGR in the last three years. But the investment decision should not be based only on past returns. There are some important reasons behind this:
Returns are always volatile – Midcap and smallcap funds have performed well recently, but the picture may change in the next 2–3 years.
Look at other parameters too – the track record of the fund, experience of the fund manager, expense ratio, risk-adjusted return and AUM (assets under management) are equally important.
Diversification is important – investing only in high-return funds can be risky.
Summing up…
SIP is an excellent way for investors to create wealth in the long term. Recently, some equity SIP schemes have given excellent returns of 28% to 37% CAGR in a period of 3 years, including midcap and smallcap funds. But investors should remember that returns only reflect past performance, not a guarantee of future. While choosing the right SIP, always keep in mind the risk along with returns, fund management, category and your financial goals. Only then will SIP become a true source of wealth creation for you in the long run.