Investment strategists say that SIPs are essentially for the long term since, for appreciation of wealth, it depends on the force of compounding that works the best with more and more time. Let’s find out the truth of the logic with examples.
The only assumption here is that the investments would generate an annual return of 12%. It is not a very ambitious figure in the long run. Any increase in the rate of return the fund managers can generate will only add to your kitty.
Another point to remember is that one should try not to sell mutual fund units for consumption — one should sell only for periodic rebalancing the portfolio for maximum gains. But one should take the advice of qualified investment experts for the step.
SIP calculator: Mutual Fund investment of Rs 10,000
Many can afford to invest Rs 10,000 a month in mutual fund SIPs. If one increases it by 5% every year one could reach a corpus of Rs 2 crore in just 23 years. The total amount would stand at Rs 2,08,63,735. The point to note is that it would mark a gain of Rs 1,58,92,078 on a nominal investment of Rs 49,71,657.
If one has the doggedness to continue the SIPs, one will get the following returns: in the 26th year, the target of Rs 3 crore will be crossed. A total of Rs 3.12 crore will be achieved.
If the investor can take it forward to the 28th year, the corpus will exceed Rs 4 crore and reach Rs 4,06,70,690, recording a gain of Rs 3,36,62,380 on a nominal investment of Rs 70,08,310.
With a step-up of 2%
Now let’s check the numbers by reducing the step-up rate to a mere 2%. The initial SIP of Rs 10,000 remains unchanged. To reach a sum of Rs 2 crore, one must continue the investment for 25 years. The total value generated after this time period will be Rs 2,17,60,995 – a gain of Rs 1,79,17,359 on a nominal investment of Rs 38,43,636.
The investor will exceed the Rs 3 crore target in the 28th year – the amount being Rs 3,18,61,968. The Rs 4 crore (Rs 4,09,35,015) target will be achieved in the 30th year. SIPs can yield a bounty in the long term.
SIP calculator: The significance of Systematic Investment Plan in mutual funds in the life of middle and lower-middle-class Indians cannot be overstated. Personal Finance Business News – Personal Finance News, Share Market News, BSE/NSE News, Stock Exchange News Today
