Witness True Power of Compounding via SIP: Investing just Rs 1,000 a month can lead to a big corpus over years; see examples
With minimal impact on the monthly budget or regardless of age and income, investors can build a retirement corpus or achieve their financial goals through a systematic investment plan (SIP).
A systematic investment plan (SIP) is a simple but disciplined way to invest in mutual funds. It allows investors to start with small, and regular contributions. Rather than investing a large amount at once, SIP lets the investor invest a fixed amount each month, quarter, or other interval of their choice. Therefore, let’s understand the significance of SIP and how it is an ideal choice for long-term wealth creation and achieving financial goals.
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Introduction to SIP
A systematic investment plan (SIP) is suitable for various financial goals. Such as saving for a child’s education, planning for retirement, or building a corpus for future needs. It is a method of investing in mutual funds that allows individuals to invest a fixed amount regularly, such as daily, weekly, monthly, or yearly. One of the significant advantages of SIPs is the power of compounding. By investing in a disciplined manner, investors can grow their money over time on both their initial investment and the accumulated returns.
Start small, dream big
Start small, dream big reminds us that every financial journey begins with a single step. With patience and consistency, even the smallest investments can grow into a huge amount to support your financial goals. SIP allows investors to enter the world of investment without minimum amounts. Investors can increase their contributions as per their financial knowledge and comfort level.
Compounding power
Compound interest makes your money grow faster because interest is calculated on the accumulated interest over time as well as on your original principal. The earlier investors start investing, the more strong the effects of compounding will be. Even small consistent investments can lead to large wealth over the years.
Flexibility and convenience
Investors can start with a small amount and gradually increase their contributions as their income grows or the financial situation changes. Investors can choose the frequency of their investments, daily, weekly, monthly, or yearly, without feeling locked into a rigid investment plan. Setting up a SIP is straightforward, it can be done online through various mutual fund platforms. It can also be managed from the comfort of your home or through mobile apps.
Minimal impact on monthly budget
SIP allows investors to start investing with a relatively small amount, often as low as Rs 500 per month. Unlike, lump sum investments, which require a one-time payment, SIP spreads the investment over time. It minimises financial pressure on investors and also helps to save for large expenses and financial goals.
Rupee cost averaging advantage
Rupee cost averaging (RCA) refers to the practice of investing a fixed amount of money at regular intervals, regardless of market conditions. This means that during market downturns, you purchase more Net Asset Value (NAV) of the investment when prices are low, and during market upswings, you buy fewer NAVs when prices are high.
Ideal for long-term goals
SIP inculcates a disciplined saving habit, which is essential for achieving long-term financial goals. It can be useful to align with specific long-term goals, such as buying a home, funding children’s education, or planning for retirement.
Tax benefits on ELSS SIPs
Investments made in ELSS funds through SIPs qualify for tax deductions under Section 80C of the Income Tax Act in India. You can claim deductions of up to ₹1.5 lakh in a financial year. SIPs in ELSS funds have a lock-in period of three years, which is the shortest among tax-saving investment options under Section 80C.
Suitable for all ages
For young investors, SIPs offer a great way to start building wealth early.
For those in the workforce, SIPs provide a flexible investment option that can be easily integrated into monthly budgets. SIPs are also ideal for families looking to save for their children’s education or marriage.
Even retirees can benefit from SIPs as a means of managing their post-retirement finances.
SIP: Calculation (10 years, 20, 30 years)
Monthly investment amount: Rs 5,000
Annual rate of return: 12 percent
Investment period: 10, 20, and 30 years
The estimated corpus after 10 years would be Rs 11,61,695.
The estimated corpus after 20 years would be Rs 49,95,740.
The estimated corpus after 30 years would be Rs 1,76,49,569.