Recently, I received this query from one of my readers over email. The person wanted to know, what return can be expected from SIP for 20 years investment horizon. As the person has not specified the type of mutual fund scheme, I’ll assume that he likes to get a general perspective on the returns. With this as my premise, I’ll try to answer the query using my Stock Engine’s mutual fund database.
All mutual funds can be categorized into four types: equity, debt, hybrid, and commodity. In these four categories, my Stock Engine has a database of about 2,700 number mutual fund schemes. Among these 2,700 nos schemes, only about 215 nos schemes had a 20-year history.
So, to judge the return of SIP for 20 years, we have to churn the data of these 215 number schemes. The average (mean) return of all these 215 number schemes comes out to be 10.52% per annum. The median return of all these schemes comes out to be 9.68% per annum.
However, these values do not give the right perspective of the return that SIPs have generated for their investors in the last 20 years. So, allow me to go into more detail to bring forth a better perspective of returns generated by the mutual fund SIPs.
Return From SIP For 20 Years Horizon (Category Wise)
There are about 38 number mutual fund categories that have a return history of 20 years or more. The below table shows the median SIP returns of each category. For example, SIP in Equity-ELSS schemes have yielded a return of 14.14% per annum in the last 20 years.
#1. Category: Equity-Consumption
One mutual fund scheme under this category is “SBI Consumption Opportunities Fund.” Investing Rs.2,500 monthly for the last 20 years would have fetched a SIP return of 19.03% per annum. It means that a regular SIP of Rs.2,500 in this scheme has become Rs.67.23 Lakhs in 20 years.
Just to give you an idea, these are the top 5 stock holdings of the SBI Consumption Opportunities Fund:
| SL | Stock Name | Overall Score | Price CAGR (20-YR) |
| 1 | ITC | 66.79 | 16.71% |
| 2 | HUL | 59.05 | 14.11% |
| 3 | 65.93 | 20.83% | |
| 4 | Maruti Suzuki | 51.89 | 18.99% |
| 5 | United Spirits | 31.28 | 25.42% |
On average, this fund category (Equity – Consumption) has yielded a return of 18.89% per annum in the last 20 years. A SIP of Rs.2500 per month would become Rs.65.84 Lakhs in 20 years.
#2. Category: Equity-Small Cap
One mutual fund scheme under this category is “Quant Small Cap Fund.” Investing Rs.2,500 monthly for the last 20 years would have fetched a SIP return of 16.8% per annum. It means that a regular SIP of Rs.2,500 becomes Rs.48.43 Lakhs in 20 years.
Just to give you an idea, these are a few small-cap stock holdings in the portfolio of this mutual fund:
| SL | Stock Name | Overall Score | Price CAGR (20-YR) |
| 1 | Marksans Pharma | 56.46 | 20.59% |
| 2 | Delta Corp | 39.19 | 13.16% |
| 3 | HEG | 55.37 | 15.69% |
In the Stock Engine’s database, this was the only mutual fund scheme under this category that had a history of at least 20 years. Else, there were four other mutual funds that had a history of 15 years or more. These small-cap schemes were of these fund houses: ABSL, Sundaram, ICICI, Kotak, HDFC, and Franklin. On average, these funds were yielding a return of about 18% per annum on a 15-year time horizon.
#3. Category: Equity-Mid Cap
There were a total of seven mutual fund schemes under this category that had a return history of at least 20 years.
One such scheme was the “Nippon India Growth Fund.” This mutual fund, in its last 20-year working history, has generated a SIP return of 17.82% per annum. At this growth rate, investing Rs.2,500 monthly for the last 20 years would have amassed a corpus of Rs.56,21,389.
Just to give you an idea, these are a few mid-cap stock holdings in the portfolio of this mutual fund:
| SL | Stock Name | Overall Score | Price CAGR (20-YR) |
| 1 | Chola Financial Holding | 78.14 | 28.21% |
| 2 | Supreme Ind | 65.16 | 30.82% |
| 3 | IPCA Labs | 45.55 | 20.97% |
On average, this fund category (Equity – Mid-Cap) has yielded a return of 16.54% per annum in the last 20 years. A SIP of Rs.2500 per month would have built a corpus of about Rs.46.65 Lakhs in 20 years.
#4. Category: Equity-Flexi Cap
In the Stock Engine’s database, there were nine mutual fund schemes under the category of flexi-caps that had a return history of 20 years or more. These schemes together yielded a median return of 14.62% per annum over a 20-year period. It means, over this period, a SIP of Rs.2,500 per month would have built a corpus of about Rs35.47 Lakhs.
In this mutual fund category, there is a scheme called “HDFC Flexi Cap Fund.” The age of this scheme is about 28 years. In the last 20 years, this scheme has yielded a return of about 16.2% per annum. A SIP of Rs.2,500 per month would have built a corpus of about Rs.44.41 Lakhs.
The portfolio composition of this mutual fund scheme is like this:
- Large-Cap Stocks: 92.5%
- Mid-Cap Stocks: 6.1%
- Small-Cap Stocks: 1.4%
Conclusion
If I invest 2500 per month in SIP for 20 years, What will be my return after 20 years?
To answer this question accurately, a few more granular question needs to be asked.
What is your preferred mutual fund type?
Going by my personality, if the investment time horizon is as long as 20 years, I will certainly pick equity as my preferred mutual fund type. I’ll avoid hybrid and debt mutual funds as equity will certainly outperform them within this period.
You will invest in SIP with what goal in mind?
My investment goal is to accumulate wealth in the next 20-year time horizon. I’ll use this accumulated corpus money to contribute to my retirement fund.
How much risk you are ready to take?
Considering my knowhow of the stock market and equity mutual funds, I’m ready to take high risks. As I’m investing through the mutual fund route (not directly in stocks), I think I’m well protected. Moreover, considering that the time horizon is like 20 years, I feel I can go all out without fearing too much about the risk of loss.
Which mutual fund category you like to invest in?
I’m investing only Rs.2,500 per month and I have a 20-year investment holding time. As I’ll invest in a quality fund house, I can go for a small-cap or a mid-cap mutual fund scheme. I’ll avoid sectoral funds as I want to keep my money more diversified.
What corpus you are expecting to build out of this SIP?
If I invest 2500 per month in SIP for 20 years, in a small-cap or mid-cap scheme, I think it will yield a return of about 17% per annum. In 20 years, it will build a corpus of about Rs.50 Lakhs
Have a happy investing.
Suggested Reading:
- How to invest money wisely?
- About regular monthly income from investments.
- The best investment strategy.
