Children's Day: Planning to accumulate funds for your child's education? Know which gives higher returns in 20 years – Rs 10,000 SIP or Rs 5,000 Step-Up SIP
Child Education Planning: As parents, one of the most important financial goals is securing a bright future for your child's education. With education costs rising, planning ahead is more important than ever. Fortunately, with the right investment strategy, achieving this goal becomes a lot less stressful.
If you're someone who can invest consistently, a Systematic Investment Plan (SIP) can be an excellent option to help save for your child's education. However, there are two ways to invest in SIPs—Regular SIP and Step-Up SIP. And the question is: which strategy works best for you?
The answer depends on how much you can invest each month and your investment horizon. The longer you invest, the greater the potential for capital gains, as time plays a key role in SIP growth.
(Disclaimer: Our calculations are projections and not investment advice. Do your own due diligence or consult an expert for financial planning)
Rs 10,000 SIP vs Rs 5,000 Step-Up SIP
To help you understand better, let's look at two scenarios: one where an investor starts with a fixed Rs 10,000 monthly SIP, and another where an investor begins with Rs 5,000 and increases their SIP contribution by 5 per cent annually, i.e., a Step-Up SIP.
This comparison will highlight the power of Step-Up SIPs and demonstrate the potential long-term returns from consistently increasing your investment as your income grows.
Scenarios 1: Calculation For Regular SIP
In the first scenario, let’s calculate the returns from a Rs 10,000 monthly SIP investment over 20 years, assuming annualised returns of 12 per cent, 13 per cent, and 14 per cent.
Rs 10,000 monthly SIP for 20 years at 12 per cent annualised returns
After 20 years, the invested amount will be Rs 24,00,000, the estimated capital gains will be Rs 75,91,479, and the expected amount will be Rs 99,91,479.
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Rs 10,000 monthly SIP for 20 years at 13 per cent annualised returns
The invested amount will be Rs 24,00,000, but the estimated capital gains will be Rs 90,55,191, and the expected amount will be Rs 1,14,55,191.
Rs 10,000 monthly SIP for 20 years at 14 per cent annualised returns
The invested amount will be Rs 24,00,000, the estimated capital gains will be Rs 1,07,63,463, and the expected amount will be Rs 1,31,63,463.
Scenarios 2: Calculation For Step-up SIP
In the second scenario, let’s calculate the returns from a Rs 5,000 monthly Step-Up SIP, where the investment amount increases by 5 per cent each year. For this calculation, we’ll assume annualized returns of 12 per cent, 13 per cent, and 14 per cent.
Rs 5,000 monthly step-up SIP for 20 years at 12 per cent annualised returns
The invested amount in 20 years will be Rs 39,67,914, the estimated capital gains will be Rs 97,69,709, and the estimated value will be Rs 1,37,37,623.
Rs 5,000 monthly step-up SIP for 20 years at 13 per cent annualised returns
In 20 years at 13 per cent annualised return, the invested amount will be Rs 39,67,914, the estimated capital gains will be Rs 1,15,74,669, and the estimated value will be Rs 1,55,42,583.
Rs 5,000 monthly step-up SIP for 20 years at 14 per cent annualised returns
At 14 per cent annualised returns, the invested amount will be Rs 39,67,914, the estimated capital gains will be Rs 1,36,65,657, and the estimated value will be Rs 1,76,33,571.
SIP Vs Step-up SIP: Conclusion
This clearly shows that even with half the investment in a step-up SIP compared to a regular SIP, the returns on individual annual returns are higher in the long run.