Mutual funds (MF) have caught the imagination of the Indian middle class, so much so that they are pulling out deposits from banks and pumping them into MF schemes. Among the different modes of investment, the Systematic Investment Plan or SIP has become the hottest investment topic.
Mutual Fund SIP calculator
Let’s take the example of a common person, who starts working at the age of 25. He/she starts investing Rs 1,000 only in one or two SIPs every month.
Rs 1000 SIP a month
Now let the person increase the investment every year at the rate of 10%. It means that in the first year if he/she invests Rs 1,000 every month, in the second year the investment per month rises to Rs 1000 + 10% of Rs 1,000, which is Rs 1,100. In the third year, the investment rises to Rs 1,100 + 10% of Rs 1,100 and so on. If the person keeps investing in this manner for 35 years, the pool of funds that will accumulate is nothing less than Rs 1,77,66,940 or Rs 1.77 crore.
Rs 2000 SIP a month
Now think of a situation where one begins with a SIP of Rs 2,000 in the first year. The rest of the conditions remains the same. In this instance, the person will end up with a corpus of Rs 3,55,33,879 or Rs 3.55 crore.
See the difference
Now see the difference a step-up SIP makes. If a person began investing Rs 1,000 per month in a normal SIP, he/she would have accumulated Rs 64,95,269 in 35 years. With a 10% step-up SIP, he/she makes Rs 1,77,66,940.
If a person invests Rs 2,000 a month through the normal SIP route, he/she will end up accumulating only Rs 1,29,90,538. With a 10% step-up SIP, a pool of Rs 3,55,33,879 is generated. We have factored in a return of a moderate 12% on the investments.
The SIP frenzy
A tell-tale sign of how SIPs are being embraced by the Indian masses lies in the inflow of SIP over the past few months. The fund collected through SIP in July was Rs 23,332 crore. In June the amount stood at Rs 21,262.22 crore and in May it was Rs 20,904.37 crore – each month notching up a new record. Incidentally, the Rs 20,000-crore level was first breached in April this year when Rs 20,371.47 came in through SIPs.
Mutual Fund calculator: Step-up SIPs help any investor to reach his/her financial goal quickly than a normal SIP that doesn’t change over time. Personal Finance Business News – Personal Finance News, Share Market News, BSE/NSE News, Stock Exchange News Today
