Rs 10,000 SIP vs Rs 4,000 Step Up SIP: Which will give higher return in 10, 20, and 30-year time frame? Results may surprise you
Power of Compouding: Systematic Investment Plan (SIP) is the most popular method of investing in mutual funds in India, reveals AMFI's monthly data. Mutual fund investors can set up a fixed monthly investment amount through SIP, or they can opt for a step up SIP with an increase in their annual income. Such a strategy in the long term can bring magical results.
Compouding Returns: The 50:30:20 investment formula says that every person should invest at least 20 per cent of their monthly income. The formula for investment is that the return should be higher than inflation plus income tax on that income. For people depending on their monthly salary, the systematic investment plan (SIP) method of investing in mutual funds has become a popular way. In India, more people are investing through SIP than lump sum, monthly data from Association of Mutual Funds in India (AMFI) proves it time and again. But if we keep 20 per cent of the monthly income for investing, we should consider the fact that monthly income increases with time. Employees get increments, promotions, and change their jobs. With that, most likely, their income also increases. So, when we talk about SIP, investors can increase their percentage of investment with a rise in their income. For that, they can opt for step up SIP, where they can increase their SIP investment amount every year. Here, we take you through a comparison of returns from a Rs 10,000 monthly SIP and a Rs 4,000 monthly step up SIP investment for the long term, where there will be an annual increase of 10 per cent.
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Calculation conditions
There will be two sets of calculations. In the first set, we will calculate the return from Rs 10,000 monthly SIP investment for 30 years. The annualised return from this investment will be 12 per cent.
Calculation conditions
In the second set, we will calculate returns from Rs 4,000 monthly step up SIP investment, where we will increase the amount by 10 per cent every year. The annualised return will be 12 per cent and the investment duration will be 30 years. We will show you the break-up of calculations after every 10 years.
Rs 10,000 monthly SIP for 10 years
After 10 years, the invested amount will be Rs 12,00,000, estimated capital gains will be Rs 11,23,391, and the expected amount will be Rs 23,23,391.
Rs 10,000 monthly SIP for 20 years
The power of compounding will significantly show its impact in 20 years.
Rs 10,000 monthly SIP for 20 years
The invested amount will be Rs 24,00,000, but estimated capital gains will be Rs 75,91,479, and the expected amount will be Rs 99,91,479.
Rs 10,000 monthly SIP for 30 years
The corpus will increase faster because of the compounding effect.
Rs 10,000 monthly SIP for 30 years
The invested amount will be Rs 36,00,000, estimated capital gains will be Rs 3,16,99,138, and the expected amount will be Rs 3,52,99,138.
Rs 4,000 monthly step up SIP for 10 years
For a Rs 4,000 monthly step up SIP where we will increase the SIP amount by 10 per cent every year.
Rs 4,000 monthly step up SIP for 10 years
The invested amount in 10 years will be Rs 7,64,996, estimated capital gains will be Rs 5,84,734, and the estimated value will be Rs 13,49,731.
Rs 4,000 monthly step up SIP for 20 years
In 20 years, the invested amount will be Rs 27,49,200, estimated capital gains will be Rs 52,06,286, and the estimated value will be Rs 79,55,486.
Rs 4,000 monthly step up SIP for 30 years
In 30 years, the invested amount will be Rs 78,95,713, estimated capital gains will be Rs 2,74,40,781, and the estimated value will be Rs 3,53,36,494.