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Summary: Two friends. One picked the top SIP performer of the decade. The other stuck with a lower-performing fund. 10 years later, the latter is richer by lakhs. How did it happen? And could the same mistake be costing you money right now? Let’s find out.
Picture this: two friends start investing on the same day. One picks the best-performing fund of the last decade. The other picks a decent-but-not-spectacular one. 10 years later, they meet up to compare notes and the one with lower returns is richer.
Sounds impossible? It isn’t. It happens more often than you think. And if you’re guilty of this common SIP mistake, you could be setting yourself up for the same fate.
The obsession with the “magic number”
Open any investment forum and you’ll see investors endlessly fiddling with SIP calculators, plugging in 15, 18, 20 per cent returns as if the secret to wealth lies in finding a magic number.
By that logic, a star-performer with, let’s say, 20 per cent plus returns should always guarantee a higher gain than its lower-earning counterpart. But that’s not always the case.
A real-world example
Over the last decade, Quant Flexi Cap Fund delivered a stellar 21.14 per cent annual SIP return while HDFC Flexi Cap delivered 19.45 per cent. If you only look at returns, Quant Flexi Cap is the clear winner, right? Not quite.
If you invested Rs 5,000 a month in Quant Flexi Cap for 10 years, your corpus would be around Rs 18.3 lakh. But if your friend invested Rs 7,000 a month in HDFC Flexi Cap, just Rs 2,000 more each month, they’d end up with Rs 23.4 lakh, an extra gain of Rs 5 lakh.
Let’s widen the return gap. A Rs 7,000 SIP in Motilal Oswal Flexi Cap, with a much lower 15.6 per cent annual return, would have still beaten a Rs 5,000 monthly investment in the high-flyer Quant Flexi Cap by over Rs 70,000 at the end of 10 years.
Yes, despite lower returns, your friend who made a higher contribution walks away richer. Because the amount invested mattered more than the percentage earned.
The importance of how much you invest
Chasing high returns feels exciting. You might also feel smug after picking the ‘top fund’. But the truth is that even the best funds have bad years. When markets turn rough, and they always do, your lofty 20 per cent expectation comes crashing down. Disappointment sets in. Many investors stop their SIPs entirely, locking in poor results.
This is why what actually matters is something much simpler: how much you invest.
When you increase your SIP by even Rs 500 or Rs 1,000 every year, say, each time you get a salary hike, you’re letting compounding work on a bigger base. Over 10, 15, or 20 years, that extra contribution can snowball into lakhs of additional wealth.
So, what really builds wealth?
- Starting now, even small: Waiting for the “perfect” fund or “ideal” market timing is a wealth killer. Start with what you can, today.
- Increasing SIPs regularly: Aim to bump your amount annually, even by small increments.
- Staying invested through downturns: Markets will fall but SIPs work even better when you keep buying in bad times. Give your investment time to compound.
- Not chasing latest winners: A consistent, good-quality fund beats a volatile star performer over decades.
Remember
SIP returns matter but they are not the kingmaker. A disciplined habit of investing more, increasing your SIP amount consistently and staying invested throughout market phases is what truly compounds wealth.
So, instead of obsessing over which fund will give you 20 per cent, focus on how much you invest.
Missing such crucial investing insights?
Many investors tend to miss such seemingly insignificant investing insights that could cost them lakhs of rupees in wealth. So, if you want to be at the top of investing learnings, check out Mutual Fund Insight, which packs data-backed strategies, timeless principles and the kind of insights that turn good investors into wealthy ones.
Subscribe now and learn the strategies your richer friend might already be using.
Also read: This ₹5,000 SIP grew twice as big as ₹15,000 SIP. Here's how
Disclaimer: This content is for information only and should not be considered investment advice or a recommendation.
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