How long should you invest via SIP to make meaningful returns?

Taking the first step into investing can feel overwhelming. But what if there was a simple, hassle-free way to fund your future without changing your lifestyle today?

Enter SIP (Systematic Investment Plan).

Think of a SIP like a monthly gym membership for your money. You don’t build physical fitness by working out for 10 hours on a single day; you get fit by being consistent over time. Financial fitness works the exact same way. A SIP helps you build long-term wealth by investing a small, fixed amount into mutual funds every month.

Why is a SIP the Ultimate Wealth Partner?

• It uses “Rupee-Cost Averaging”: Think of this like buying clothes from your favourite brand. When there is a sale your shopping budget gets you three shirts instead of one. Similarly, when the market dips, your fixed monthly SIP automatically buys more units and when the market rises, it buys fewer. Over time, this smooths out market volatility so you don’t have to worry about timing the market.
• It builds discipline: Setting up a SIP forces you to pay your future self first. Regular SIPs help in wealth creation and also reduces the impact of market volatility over time.
• Hassle free set up – You can start investing in 5 seconds with the ease of UPI, completely automating your financial goals.

But What Does “Long-Term” Actually Mean?

“Invest for the long term” and “SIPs build wealth in the long run” are phrases we have heard constantly since Mutual Funds became a mainstay of modern investing. But while we understand that Mutual Funds build wealth over time, how do we actually define that timeline? 

The interpretation of ‘long term’ varies among individuals. Perspective on a longer time horizon can be influenced by the person’s age. For instance, a 25-year-old might consider a period of 3 years as a significantly long term, as it encompasses more than 10% of their lifetime but is that considered ‘long term’ in investment?

Historical Data: The Probability of High SIP Returns 

When it comes to building wealth through Mutual Fund SIPs, your ultimate superpower is not timing the market, it is the time in the market.

Historical data shows that the longer you hold your investment, the higher your chances of hitting your financial goals. To better understand this, we took a step back and analyzed what exactly is defined as long term. 
We looked at 1-year, 3-year, 5-year, 10-year and 15-year rolling returns of SIPs and found the probability of how likely it is that you would have made more than 8% and 12% in the past.

Source: MFI360 Explorer. Probability based on rolling returns of SIP for 1st of every month in Nifty 500 TRI from Jan-95 to May-26. Past performance is not an indication of future results.

Through our analysis of the past data, we observed that if you aim for an 8% return, which beats inflation and most FDs, the probability of earning the expected return could be 59% once you hold the investment for a period of 5-years. Moreover, if you continued to invest for 10 to 15 years,the probability could jump to 99%. 

But what if you are looking at a double-digit return, let’s say 12%. To get those higher rewards, you just need to give your money a little more time to grow. For a 12% return, your odds become highly favorable once you cross the 10-year mark. By year 15, your chance of hitting that target is 91%. 

To be clear, this does not mean that to make 8% or 12% returns, you will take at least 10 years every time. It means that based on history, the longer you stay invested, the more the market eliminates the risk of a bad year.

So the next time when someone says, SIPs reward patience and long-term investment, you truly know what they are talking about. 

Disclaimer:

Mutual Fund Investments are subject to market risks, please read all scheme-related documents carefully.

PhonePe Wealth Broking Private Limited | AMFI – Registered Mutual Fund Distributor ARN –187821.