Power of Compounding: How Rs 14,000 monthly SIP investment for 5 extra years can double your corpus; understand through calculations
Rupee Cost Averaging in SIP: When the market fluctuates, rupee cost averaging helps SIP investors average their investments. This strategy helps investors buy more units when prices are low and fewer units when prices are high.
SIP (systematic investment plan) in mutual funds is a good way to make an investor regular and disciplined as a fixed amount gets deducted automatically from the investor's bank account regularly. SIP is best for the long-term investment plan. It allows investors to benefit from the power of compounding and achieve their financial goals.
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What is an SIP?
SIP is a type of investment in mutual funds in which you invest a fixed amount every week, month, quarter, or year.
How do SIPs work?
An amount that you choose for investment automatically gets deducted from your bank account and invested in the mutual fund of your choice.
Flexibility in SIP
There is full liberty to adjust your investment amounts based on goals and risk profile.
What is the rupee cost averaging in SIP?
When the market fluctuates, rupee cost averaging helps SIP investors average their investments. This strategy helps investors buy more units when prices are low and fewer units when prices are high.
Disadvantages of SIPs
Market risk: Since SIPs invest in mutual funds, which further invest in stock markets, this is subject to market fluctuations.
Returns: Entry and exit time
The entry and exit time in the market can affect overall returns.
Locking
In SIP, you may need to lock your money for three years.
How Rs 14,000 monthly SIP investment for 5 extra years can take your corpus from 1.59 crore to Rs 3.01 crore?
Suppose you start investing Rs 14,000 per month in a SIP and you invest regularly for 21 years. Then your total investment would be Rs 35,28,000 (Rs 35.28 lakh) in 21 years. On an estimated annual return of 12 per cent, your returns would be Rs 1,24,13,439 (Rs 1.24 crore) and the maturity amount would be Rs 1,59,41,439 (Rs 1.59 crore).
Now, what if you increase your investment time to 5 more years?
Increasing time in SIP investments can make a huge difference. For example, if you keep investing the same amount for five more years, then your maturity amount will be Rs 3,01,15,569 (Rs 3.01 crore).
Calculations of accumulating Rs 3.12 crore corpus
Total investment in 26 years: 43,68,000 (Rs 43.68 lakh)
Expected returns: 12 per cent
Estimated returns: 2,57,47,569 (Rs 2.57 crore)
Maturity amount: 3,01,15,569(Rs 3.01 crore)
Investing in mutual funds is subject to market risks. Consult your advisor before making any investment.