If we said you could have ₹10 lakh by investing just ₹2,000 each month, you might think we were kidding. However, it is quite possible through a Systematic Investment Plan (SIP). We will show you how you can grow your wealth with a small investment.
What is a SIP? How does a SIP work?
A Systematic Investment Plan (SIP) is a type of plan where you invest an amount of your choice on a monthly basis. This amount could be low as ₹1,000 or larger. You choose the frequency of the investments, whether monthly, quarterly, or annually. The money is invested on a fixed date.
With a SIP your investment will grow over time and you will also receive returns. The unique feature of a SIP is that both the investments and profits earn compound interest and your wealth grows even faster with compounding.
How Does a SIP Work?
Whatever you invest in a SIP, the fund manager puts that money into a mutual fund. For example, if you invest ₹1,000 and the mutual fund’s Net Asset Value (NAV) is ₹20, you will get 50 units of that fund. As the NAV increases, your returns will also grow.
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How Can a ₹2,000 SIP Make ₹10 Lakh?
Now, let’s see how a ₹2,000 SIP can grow to ₹10 lakh. Assume you earn an average return of 12% per year. You would reach ₹10 lakh in about 15–16 years.
- Investment: ₹2,000/month
- Interest: 12% per year
- Total investment: ₹3.6 lakh
- Total return: ₹6.49 lakh
- Total amount: ₹10.09 lakh
This calculation is based on a 12% return. If the return is higher, you can reach ₹10 lakh faster. Also, if you invest more or invest regularly at a fixed time, you can earn more than ₹10 lakh in fewer years.
