Mutual funds are the toast of India and Systematic Investment Plan or the SIP is a powerful investment tool in the world of mutual funds. It allows you to investment small amounts every month or week or even every day to create a big fund after several years, thanks to the power of compounding.
Step-up SIP calculator
But a step-up SIP packs even more power because in this mode the investor raises the amount of investment every year. Increasing the amount of SIP can be done in two ways – by a fixed rate every year, say 5% or 10% of the SIP amount in the previous year or by a fixed amount every year, say by Rs 500 or Rs 1,000 etc.
With a step-up SIP calculator one can find out how a really small amount of investment can build a big corpus in several years. The key is continuing investments patiently and stop or redeem mutual fund units to make some impulsive purchase.
Begin SIP early
Let’s take the example of an individual beginning the investment journey with an amount of Rs 2,000 only. He/she puts the money through SIP in mutual funds of his/her choice. The rate of return is a modest 12%.
The amount is so low that one can begin early, say 18 or 20. Many can even begin with one’s pocket money. If someone begins at 18, then by 38, and without any effort at all, he/she can reach a considerable sum.
The amount by which the SIP amount is raised every year is Rs 500. It means in the first year he/she invests Rs 2,000 every month which becomes Rs 2,500 in the second year and Rs 3,000 in the third year and so on.
If he/she continues the journey for 20 years, the investor reaches a corpus of Rs 49,27,375 or close to Rs 50 lakh.
A few other scenarios
The step-up calculator will show you that if the SIP in the months of the first year is Rs 3,000, the final amount in 20 years will be close to Rs 60 lakh if all other parameters – the rate of return and increasing SIP amount by Rs 500 each year – are kept unchanged.
Let’s push the calculation a little further.
One can begin with a monthly SIP of Rs 5,000 and raise the amount by Rs 1,000 every year. If the investment is continued for 20 years an amount of Rs 1.08 crore would be created. The rate of return remains unchanged at 12%.
Step-up SIP allows one to continuously raise one’s investment while extracting the benefits of compounding over an extended period of time. The key is to plan investments in a way that does not create financial stress. Personal Finance Business News – Personal Finance News, Share Market News, BSE/NSE News, Stock Exchange News Today
