If you want to create a big fund of ₹ 10 lakh, then a Systematic Investment Plan (SIP) can prove to be a better and more profitable way instead of a Fixed Deposit (FD) in the bank. While the interest rates in FD are limited, SIP gives you the benefit of being connected to the equity market, which gives you the possibility of getting many times more returns in the long term.
But the biggest question is how much money will have to be invested every month and for how many years? The answer to this question depends on how much you can invest every month and what is the annual return on your investment. Come, today we explain to you the whole math of creating a fund of ₹ 10 lakh through SIP.
What is SIP and why is it better than FD
Systematic Investment Plan (SIP) is an easy and disciplined way to invest in Mutual Funds. In this, you invest a fixed amount every month, and this amount is invested in the stock market through mutual funds. The biggest advantage of SIP is that you can gradually build a large fund, and the effect of market fluctuations is averaged out.
It is also called “Rupee-Cost Averaging”, which means that when the market falls, you buy more units, and when it rises, the value of your investment increases. It is a much more flexible and powerful tool than FD.
When will you make ₹ 10 lakh
In Equity Mutual Funds, the average annual return on SIP in the long term is considered to be 12%. This rate is much higher than FD, where usually only 5-7% interest is available. Now let us see how much time it will take to make ₹10 lakh by investing ₹1,000, ₹3,000 and ₹5,000 every month in SIPs:
Monthly SIP Estimated time Total investment Estimated returns Total value
₹1,000 21 years ₹2.52 lakh ₹7.48 lakh ₹10 lakh
₹3,000 12 year 3 months ₹4.41 lakh ₹5.59 lakh ₹10 lakh
₹5,000 8 years 10 months ₹5.30 lakh ₹4.70 lakh ₹10 lakh
Can the time be more or less
These calculations are based on an assumed annual return of 12%. However, the actual returns may vary. If you assume a lower return (say 10%), the number of years will increase slightly. On the other hand, if the return is 15% or more, then your goal can be achieved even faster. The biggest beauty of SIP is that it takes advantage of market dynamics. You can create a good fund for your children’s education, a down payment on a house, or retirement through SIP.
Pay special attention to these 5 things while doing SIP
It is extremely important to keep these 5 things in mind while doing a Systematic Investment Plan (SIP):
1. Decide Your Goal
Before starting SIP, decide the purpose for which you are investing. Like buying a house, children’s education, retirement. This will help you choose the right fund and period. A clear goal keeps you motivated.
2. Have a Long-Term View
The real benefit of SIP comes from compounding, which grows over time. Have a view of at least 5-10 years so that the impact of market volatility is reduced. Over a long period, market fluctuations balance out and you get better returns.
3. Choose the Right Fund
Check the past performance of the fund manager, risk profile, and reputation of the fund before investing. Choose equity, hybrid, or debt funds according to your risk tolerance. If you can take more risk, equity funds can give better returns.
4. Don’t Be Afraid of Downturns
The advantage of SIP is that you invest a fixed amount every month, whether the market is up or down. When the market is down, you get more units at a lower price, which reduces your average cost. So, don’t worry about market fluctuations, but look at it as an opportunity.
5. Regularly Review Your SIP
Review your SIP portfolio every 6-12 months. Change funds or increase the SIP amount as needed. But avoid making frequent changes, as it may affect your long-term goals.