Everyone wants their small savings to grow into a big amount over time. The easiest and most effective way to achieve this goal is to invest in mutual funds through a Systematic Investment Plan (SIP). In this, the investor invests a fixed amount every month, which keeps increasing year after year due to the power of compounding.
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What is SIP, and why is it beneficial?
SIP (Systematic Investment Plan) is a way of investing in mutual funds in which the investor invests a fixed amount every month. This method is special for those people who cannot invest a large amount at once. By investing in SIP for a long time, the effect of compounding starts showing, and even a small amount turns into lakhs.
Complete calculation of SIP of Rs 1,000
Year Total Investment (Rs) Total Value (Rs) Profit (Rs)
1 12,000 12,809 809
2 24,000 27,243 3,243
3 36,000 43,508 7,508
4 48,000 61,835 13,835
5 60,000 82,486 22,486
6 72,000 1,05,749 33,749
7 84,000 1,31,940 47,940
8 96,000 1,61,414 65,414
9 1,08,000 1,94,569 86,569
10 1,20,000 2,31,851 1,11,851
When will a SIP of Rs 1,000 become Rs 2 lakh?
Suppose you start a SIP of only Rs 1,000 every month and get an average annual return of 12%. In 10 years, your total investment will be Rs 1,20,000. Due to the effect of compounding, this amount will increase to about Rs 2,32,000. That means you will get a profit of about Rs 1,12,000.
How much will the money grow in 15 and 20 years?
If you continue SIP for 15 years, then your total investment will be Rs 1,80,000, and its value will increase to about Rs 5,04,000. On the other hand, if you continue SIP for 20 years, the total investment will be Rs 2,40,000, but its value can reach about Rs 10 lakh. That is, a small investment can give a profit of seven to eight lakh rupees.
Big change from a small amount
Many people believe that a small amount like Rs 1000 will not bring any big change. But the power of SIP is that it gradually takes the form of a large amount. It can be understood like a digital piggy bank, in which the money deposited every month keeps increasing with interest and dividends.
Set a goal before investing
Before starting SIP, it is important to be clear what your objective is. Such as children’s education, marriage, buying a house, or retirement. The right mutual fund can be chosen only after setting the goal. For this, choose funds whose past performance has been stable and reliable.
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Things to keep in mind while investing in SIP
It is very important to stay in SIP for a long period. The market may be volatile in the short term, but in the long term, the risks are balanced, and better returns are generated. It is considered wise to review your fund every 1-2 years and make changes if needed.