Power of Compounding: Know how much you should invest monthly to accumulate Rs 10 crore retirement fund; calculations inside
If you are investing a fixed amount through SIP, you may want to raise your SIP outgo as your monthly income rises over time. It will help you increase your corpus too and show the power of compounding.
SIP or Systematic Investment Plan is a mutual fund investment scheme that allows investors to invest a fixed amount regularly.
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Compounding interest works best in SIP
Compounding interest works best in SIP. The interest you earn on your savings is continually added back to the principal, and the interest is calculated on the new principal amount. Now, as the principal amount grows each year, so does your return. This is called the power of compounding.
How can you take better benefits of compounding?
Here is how you can take advantage of compounding.
Start investing early
You will get better returns if you start an SIP early.
Try not to cancel in between
It would help if you tried to continue the SIP to get better compounding benefits. If you want to achieve your goal, don't think to cancel SIP.
Increase investment
If you are investing a fixed amount through SIP, you may want to raise your SIP outgo as your monthly income rises over time. It will help you increase your corpus too and show the power of compounding.
Power of compounding: Understand with an example
Let's imagine you invested Rs 100 and earned Rs 5 through compound interest. Now, in the following compounding cycle, the return will be computed on Rs 105 rather than Rs 100. As a result, compounding might lead to exponential rather than linear growth of the corpus.
SIP: Minimum investment amount
Currently, the minimum investment amount is Rs 500 per month.
SIP: Maximum investment amount
There is no maximum limit to invest in an SIP.
What are the types of SIP?
Top-up SIP
Flexible SIP
Perpetual SIP
Compounding interest
SIPs can let your money grow tremendously over time due to compounding interest.
Types of SIP
Top-up SIP
Flexible SIP
Perpetual SIP
SIP calculator
A SIP calculator can help you define financial objectives, determine the amount you need to contribute, and track your progress.
How to accumulate Rs 10 crore fund?
If you start SIP at the age of 30 and continue investing till 60 then you can achieve this goal of accumulating Rs 10 crore fund.
Invest Rs 15,400 per month
For example, if you start an investment of Rs 15,400 per month at 30 and continue investing till 60. Then you will invest a total of Rs 64,68,000 (Rs 64.68 lakh). Your expected return rate is 12 per cent and you will be able to get around Rs 9,35,59,143 (Rs 9.35 crore) as interest. The maturity amount will be Rs 10,00,27,143 (approx. Rs 10 crore).
Disclaimer: Investing in mutual funds is subject to market risks. Consult your advisor before making any investment.