Imagine you are moving at 10 km per hour and your friend is moving at 11 km per hour.
After 6 minutes they are only 100 m (1/10th of 1km) apart which is not very significant. You can literally see each other.
After an hour you are 1 km apart. You can no longer see each other but still, you aren’t all that far from each other. If you wish you can meet each other easily.
But after 10 hours you are 10 km apart and after 100 hours you are 100 km apart.
Now you are in two different cities. It’s too far to meet each other. Perhaps you have to speak over the phone.
Likewise investing in a fixed deposit of 6% per annum or investing in a mutual fund of 10-15% per annum does not make a huge difference when invested for a period of 1 year or even for that matter for a period of 2 years.
However, if you were to invest for a period of 10 years to 15 years, the 4-9% difference will become nearly 100-200%.
Hope this explains why even a 4-9% difference in returns cannot be ignored in the long term and moreover why Equities is a more appropriate asset for the long term to invest in than a Fixed Deposit.
Benefits of investing in mutual funds via SIP
With a SIP, you can get started with your investment with a small amount and reap significant returns in the long run. It’s simple and the most convenient way of investing in mutual funds. It also brings financial discipline.
Convenience
You can invest in a disciplined and phased manner through a SIP. It gives you the convenience of starting your investment as low as Rs 100 a month.
Rupee Cost Averaging
You don’t have to time the market. You buy more units when markets are low. This reduces your overall cost of investment.
Power of Compounding
You will unleash the power of compounding on investing over a long period. The rupee cost averaging phenomenon will ensure that you get better returns as compared to a lump-sum investment.
2x Higher returns than RD
ELSS mutual funds have the potential to provide much higher returns than bank FDs, PPF, and other traditional investment options.