SIP Calculation: Let’s say you start saving only 3000 rupees a month from your salary. Not a burden, not a big deal. Just another harmless habit, in addition to your mobile recharge or internet bill. Now, imagine that this harmless habit can help you build a nest egg of 50 lakh rupees.
Sounds a bit far-fetched? That’s actually what’s so amazing about SIP, or Systematic Investment Plan. In today’s world, when everything is going up in cost, a question in the minds of the middle class and people with jobs is: how to save for tomorrow?
It is not easy for people to invest a large amount of money at once. When such a problem arises in your life, SIP comes to you like a friend and prepares you financially in a calm and non-threatening manner.
What is SIP, and why do people like it so much?
SIP stands for systematic investment plan. It means investing a fixed sum of money in a mutual fund every month. The most desirable thing about this is that you don’t have to track or time the market every day. All you need to do is invest a fixed amount of money on a fixed date. Whether markets are up or down, you keep on investing.
Salaried persons, along with middle-class families, appreciate the idea of SIP because it requires only a very small initial amount for investing. The fact is that 3000 rupees every month is affordable by any individual in the modern era.
How does the journey from 3000 rupees a month to 50 lakh rupees unfold?
However, now comes the actual question of how long it would take to accrue a sum of 50 lakh rupees with a monthly investment of 3000 rupees only. The answer to this question would depend on the rate of return one earns.
If we consider the example of an average equity mutual fund, with an average long-term return of around 12 per cent every year, the situation will slowly start becoming clearer to us. 3000 rupees every month means 36,000 rupees in a year. In the initial years, you may feel as if the money is being grown at a fair pace, but this marks the point where most people wrongly stop their SIPs (Systematic Investment Plans).
The Power of Compounding: Working Silently
A lot of times, people just don’t get the concept of compounding since the result isn’t visible immediately. Imagine a plant that, at the end of the first year, has grown only a little, but after some years, it suddenly appears big. Analogously, in the case of an SIP, the first 8 to 10 years might give you the impression that your money isn’t increasing at a rapid pace. After 15-20 years, the same money will astonish you.
Therefore, it is even more important for us as investors to be patient with SIPs in terms of time duration. Only then can we gain real advantages out of it. People who lack experience and knowledge do not know
Who benefits most from SIPs?
So, if you are earning, having a fixed income, and able to set aside a small amount of money each month, then SIPs are ideal for you. These are ideal for a conservative investor, too, since SIPs enable you to smooth out market fluctuations. There is no need to set aside a lump sum amount of money either.
Can the SIP amount be increased later?
Moreover, another great thing about SIPs is that they are not rigid. If your salary goes higher, your SIP amount can also be increased. If your initial salary is ₹3000, which goes to ₹5000 or ₹7000 in a few years, with this increase, your ₹50 lakh goal can be attained even more quickly. Such features make SIPs even more special.
A Small Habit, a Big Future
SIPs are not a way to make quick money. SIPs are a smooth and legitimate way to create your wealth. If you have ₹3,000 in your pocket per month, and you invest for a longer period of time, saving ₹50 lakh is not a difficult task to accomplish.
Disclaimer: This article has been provided for general information and understanding only. The investments made in Mutual Funds carry market risks, and no guarantee is provided for returns. It is advised that you consult your financial advisor before investing and read all relevant documents related to the schemes.
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