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Stock markets do not behave like an FD
Stock markets fluctuate with time and modeling it like an FD is risky. There is nothing called “average” return in a stock market.
How many funds have better than 15 percent SIP returns?
As per Valueresearchonline data, out of 178 equity funds older than 15 years, only 43, i.e. 24% or 1 out of 4 funds, have given returns for SIP of more than 15%.
1/4 does not indicate good odds. Imagine crossing a road with a 1/4th chance of crossing safely. People will stop crossing streets. The same logic is applicable here.
Only 24% of the funds older than 15 years have reached a portfolio of ₹1 crore or above in the last 15 years after investing ₹15,000/month.
What if we get lower than 15% returns?
Since stock market returns are not predictable, let us see what happens if we get less than 15% returns before 15 years are over.
As the table shows, in the case where 8 years is left out of 15, and the return to date has been 12%, the return needed to reach ₹1 crore in 8 years is an absurd 16.9%. Only 9% of the funds, out of 178, have come to this figure.
Essentially, if you fall behind your target 15% at any point along the way, it becomes even more challenging to catch up.
Understand that wealth creation via SIP is not guaranteed
We calculated SIP return data for 10-year periods and saw that a ₹10,000/month SIP (₹12 lakhs investment) reached a figure between ₹15 to ₹28 lakhs. This conclusion is that the return is too unpredictable to be useful.
No one can predict the future irrespective of their credentials, confidence or track record. This includes mutual fund sales personnel and fund managers. If you are being sold an investment based on returns, it will be on your head if you do not have enough money to be spent for your goal on the date you need to spend. Here are some worked-out examples with some typical goals and how to invest for them:
Disclaimer: Content on this site is for educational purpose only and is not financial advice. Nothing on this site should be construed as an offer or recommendation to buy/sell any financial product or service. Please consult a registered investment advisor before making any investments.
This post titled The myth of the 15*15*15 or crorepati rule for mutual funds in India first appeared on 15 Feb 2023 at https://arthgyaan.com