A monthly SIP (Systematic Investment Plan) is a popular way to build wealth over time. But with so many mutual fund options and flexibility over SIPs, it can be confusing to be on the right path. Many times, people experiment with different fund types, or they try to time the market. Another popular way is to split SIPs across funds to optimise returns.
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For someone wanting a simple SIP route, what makes more sense for wanting to build Rs 1 crore corpus? Imagine you decide to invest Rs 20,000 in an SIP over the long-term, hoping to achieve a Rs 1 crore corpus. Would it make more sense to split the amount into two SIPs?
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The answer depends on how the money is invested, the returns earned, and the investment period. If both options earn the same returns over the same period, the final value will be the same. Splitting the investment across two mutual funds may offer more diversification. If one performs better, it may lead to better results. Understanding with examples:
Rs 20,000 SIP for Rs 1 crore:
- SIP amount: Rs 20,000
- Investment duration: 15 year
- Expected rate of return: 12%
- Invested amount: Rs 36,00,000
- Estimated returns: Rs 64,91,519
- Total value: Rs 1,00,91,519
Rs 10,000 SIP but both earn same return:
SIP 1:
- Amount: Rs 10,000
- Investment duration: 15 year
- Expected rate of return: 12%
- Invested amount: Rs 18,00,000
- Estimated returns: Rs 32,45,759
- Total value: Rs 50,45,759
SIP 2:
- Amount: Rs 10,000
- Investment duration: 15 year
- Expected rate of return: 12%
- Invested amount: Rs 18,00,000
- Estimated returns: Rs 32,45,759
- Total value: Rs 50,45,759
Final corpus: Rs 1,00,91,518
This shows that splitting SIPs is not going to make a difference if both individuals’ funds earn the same returns over the year.
Both funds earn different returns:
SIP 1
- Amount: Rs 10,000
- Investment duration: 15 year
- Expected rate of return: 13%
- Invested amount: Rs 18,00,000
- Estimated returns: Rs 37,56,812
- Total value: Rs 55,56,812
SIP 2:
- SIP amount: Rs 10,000
- Investment duration: 15 year
- Expected rate of return: 11%
- Invested amount: Rs 18,00,000
- Estimated returns: Rs 27,88,575
- Total value: Rs 45,88,575
Final corpus: Rs 1,01,45,387
This shows that different returns from both SIPs can also have a huge impact on the final corpus. If one of the SIPs performs very well, but the other lags, it can bring your average growth down. But it also gives you the opportunity to diversify, which reduces the risk of concentration in your portfolio.
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Overall, SIP investments themselves are one of the riskiest assets since growth is never guaranteed. Diversification is encouraged but you need to make investments as per your risk appetite, instead of simply chasing returns.
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