Wealth can be created by investing early and regularly.

It is a method of investing a fixed sum in the units of Mutual Funds at regular intervals. It is like Recurring deposit. It is considered as one of the best ways to accumulate wealth over the long term. The investor can choose a mutual fund based on how it has done over the last 5-10 years and start a SIP. You can find out the ratings of Mutual Funds, their performances since inception, which company stocks they are holding etc. at Value Research Online.

According to new SEBI guidelines if you buy directly from the mutual fund, then there is no entry load!! Time and again it is proven that it is impossible to time the market. The investor can get the benefit of market volatility by investing in a SIP. SIP investor gets better returns compared to one time investor because of rupee cost averaging. If you invest for a longer time, the magic of power of compounding works here.

The advantages of SIP are:

1. Rupee cost averaging.
2. Power of compounding.
3. Affordable Investment option (Investment can be as low as Rs 500 per month).
4. Potential of long term wealth creation.
5. Compounded Returns.

The table which shows the performance of 5 year period and minimum and Maximum returns throughout the 60 months of installments. Even thought the market crashed by over 50% in year 2008. The loss was contained in all the schemes and the maximum notational loss at any point was 21%. Similarly, the market gave returns of 90%. The maximum returns were 72%. The Systematic investment plans hence reduces the volatility both on the upside and down side.

This strategy has worked for millions of people around the world. More than anything else, it inculcates saving discipline.

Are there any specific examples where one can find out how investing regularly through a SIP has performed for the last 5 years?

Some Funds that that lost the least when the market crashed in 2008.

A recent article in business line listed 4 diversified funds which lost the least in 2008 and 5 balanced funds which lost the least in 2008 and gave highest 3 year and 5 year returns.

You can find below how the regular investment of Rs 1000 on 10th of every month starting from July 11th 2005 in each of these schemes has performed. As the article says in the concluding paragraph "We have arrived at funds that have managed to lower volatility with good returns in the past; we can not completely rule out the possibility that will slip on either count in future. Regular monitoring of this portfolio is a must. When it comes to equity funds, there is really no completely defensive option. Remember even the best funds in our portfolio saw their NAV drop by 35% or more when the stock market tanked in 2008."

The table below lists how a monthly investment of Rs 1000 on 10th of every months in each of these funds for 5 years starting from July 11th 2005 till June 11th 2010 has performed. The value of the investment is as of July 23rd 2010. The information is based on the NAV data provided by SIp calculator provided by MutualFundsIndia.com. The assumption is that the investor continued his / her investments in the select funds for 5 years and choose growth option of the said scheme. It is also assumed that the AMC company was charging 2.5 entry load for the same.

One interesting fact to note is that even though the market crashed in 2008. Investments in all the below funds was below it's value for not more than 8 months in the 60 month period. Also the notational loss was much lower than the annual negative return given by all these mutual funds.

Average approximate annnual returns are % gain/loss over the original investment in percentage terms.

How has investing in the SIP worked historically? You can find how investment of Rs.1000 per month in Franklin India Blue chip fund has performed over 11 years starting from January 8th 2001 to December 8th 2011. As can be seen the investment of Rs 1,32,000 has grown to 4,85,404. In this entire period of 11 years the value of investment went below the original investment only for just 7 months of the total 132 months. In the market peak just before the financial crisis the value had gone upto nearly 5.5 lakhs. The compounded annual returns for this investment is over 22% Per Annum. The chart below is interactive and you can see the values change as you move the cursor around. Four values, price paid, market value, profit/loss and the date on which you are viewing the value are shown at the top of the chart. Please note that historically performance does not ensure that future performance will be the same. The case study is actual returns. By Nature investing in equity mutual funds is risky. Their values fluctuate widely. At the peak of the market the investment value was 5.54 lakhs. For the first three years the investment value and value of the investment was almost equal there was no profit at all. But,as the time horizon increase the probability of making profit increase and probability of losing money decreases. One needs to stay focused on the Goal and continue to invest. Experience has shown that time in the market (staying invested in the market for the long term is more important than trying to time the market). The graphs shows cost of investment, value of the investment and the profit/loss made during the entire 11 year period.