Top 3 Strategies to Invest in Index Funds

Systematic Investment Plans (SIPs) is said to be a disciplined and convenient way to invest in mutual funds. SIPs offer several advantages, including rupee cost averaging, compounding benefits, and flexibility. In this article, we'll understand actionable strategies to optimize your SIP investments for long-term wealth creation including analysing the power of step-up and compounding every year.

Let's take an example of investing INR 4000 per month for 25 years.

Strategy 1 - Low Risk SIP in Index funds

• Invest the full amount in a low risk index fund, say Nifty 50;

• Step up the amount by 10% every year;

• Period of Investment - 25 years;

• Expected ROI - 15% p.a

  Outcome:

• Expected returns after 25 years including Investment with Step-up - ₹2,63,26,987 (2.63 crores)

• Expected returns after 25 years including Investment without Step-up - ₹1,31,36,295 (1.31 crores)

Strategy 2 - Medium Risk SIP in Index funds

• Invest 50% amount in low risk fund and 50% in medium risk fund, say INR 2000 in Nifty 50 Index fund and INR 2000 in Nifty LargeCap Index fund;

• Step up both the investments by 10% every year;

• Period of Investment - 25 years;

• Expected approximate ROI - 15-20% (combined)

  Outcome:

• Expected returns after 25 years including Investment with Step-up - ₹4,26,63,290 (4.27 crores)

• Expected returns after 25 years including Investment without Step-up - ₹2,38,21,563 (2.38 crores)

Strategy 3 - High Risk SIP in Index funds

• Invest 33% amount in low risk fund, 33% in medium risk fund and balance 34% in High risk fund, say INR 1333 in Nifty 50 Index fund, INR 1333 in Nifty LargeCap Index fund and INR 1334 in Nifty SmallCap Index Fund;

• Step up all three investments by 10% every year;

• Period of Investment - 25 years;

• Expected approximate ROI - 15-25% (combined)

  Outcome:

• Expected returns after 25 years including Investment with Step-up - ₹7,66,23,263 (7.66 crores)

• Expected returns after 25 years including Investment without Step-up - ₹4,75,42,409 (4.75 crores)

Step-Up SIPs offer a strategic and flexible approach to wealth creation, empowering investors to harness the power of compounding and adapt to changing financial dynamics. By gradually increasing SIP contributions, investors can accelerate their journey towards achieving financial goals and building a robust investment portfolio.