Illustration on Mutual FundsMr. Shah's Mutual Fund Investment
Mr. Shah earns Rs. 40,000 every month. Out of this, he invests Rs. 10,000 in ABC Mutual Fund every month through a SIP for 1 year, but plans to keep his investment for 3 years.
Let's see how his investment pans out:
Month 1: NAV - Rs. 10, Units Bought - 1000
Month 2: NAV - Rs. 8, Units Bought - 1250
Month 3: NAV - Rs. 7, Units Bought - 1428.57
Month 4: NAV - Rs. 11, Units Bought - 909.09
Month 5: NAV - Rs. 15, Units Bought - 666.67
Month 6: NAV - Rs. 17, Units Bought - 588.24
Month 7: NAV - Rs. 10, Units Bought - 1000
Month 8: NAV - Rs. 17, Units Bought - 588.24
Month 9: NAV - Rs. 20, Units Bought - 500
Month 10: NAV - Rs. 22, Units Bought - 454.55
Month 11: NAV - Rs. 25, Units Bought - 400
Month 12: NAV - Rs. 20, Units Bought - 500
So, at the end of his investment cycle, Mr. Shah holds 9285.36 units of ABC Mutual Fund through his disciplined approach to investing. Finally, at the end of 3 years, when Mr. Shah decides to redeem his investment, he finds that the mutual fund NAV is Rs. 25. At the time of redemption, the value of his investment is Rs. 2,32,134!
So we see that Mr. Shah invested Rs. 1,20,000 in total over a year. 2 years after he completed his investment through a SIP, he finds that the value of his investment is Rs. 2,32,134. That's a return of about 93% over 3 years!
Note: This is only an example. It is possible that the mutual fund could have lost value over the same 3 year period. The mutual fund performance is dependent on market performance. There are no guarantees in mutual fund investing.