The Crorepati Dream – Why SIP Became Popular
Systematic Investment Plans (SIPs) became the go-to investment option for millions of Indians because:
• Ease of investing: Start with as low as ₹500/month.
• Power of compounding: Small, regular investments grow big over time.
• Historical returns: Equity mutual funds delivered 12–15% CAGR over the last decade.
This created the “Crorepati dream” — invest ₹10,000/month for 20 years and become a millionaire. But will this hold true in the future?
Historical Returns vs Future Expectations
Past performance was driven by:
• Strong GDP growth
• Lower retail participation
• Attractive valuations
Why future returns may be lower:
• Market saturation: Massive SIP inflows push valuations higher, reducing future upside.
• Economic moderation: Growth rates slowing compared to the last decade.
• Regulatory tightening: SEBI norms reduce risk but also cap aggressive returns.
Expect 8–9% CAGR going forward instead of 12–15%.
Why More SIP Investors Can Impact Returns
When everyone invests in similar large-cap funds:
• Demand pushes prices up → valuations remain high → returns compress.
• Similar to FD story: FDs were attractive decades ago, but as adoption grew and inflation changed, rates dropped.
Mutual funds are market-linked. If inflows rise faster than earnings growth, returns will shrink.
Realistic Projections Let’s compare ₹10,000/month SIP for 20 years:
|
CAGR |
Final Corpus |
|
12% |
₹1.0 Cr+ |
|
10% |
₹91 Lakh |
|
8% |
₹70 Lakh |
Lesson: SIP is still powerful, but don’t expect past returns to repeat.
Taxation on Booking Profit
Earlier, long-term capital gains (LTCG) tax was 10%. Now it’s 12.5%, and likely to increase further.
Implication:
• Periodic profit booking and rotating investments is essential.
• Blindly holding for decades may not be tax efficient.
Smarter Alternatives
• Diversify: Don’t rely only on SIP. Add ETFs, international funds, gold.
Invest in US Market:
• Flexi Investment: Invest more when markets dip instead of fixed SIP.
• One-time Mutual Fund Investment: Lump sum during corrections can outperform SIP.
• Goal-based approach: Focus on financial goals, not hype.
Conclusion
SIP is still a great tool for disciplined investing but returns will normalize as markets mature and taxation rises.
The key is smart investing — diversify, book profits periodically, and adapt strategies like flexi investing.
