We all wish for enormous wealth like investment firms promise. But many of us often feel that we don't have enough money to invest to create that kind of wealth. After all, money makes money, right? However, what we often fail to realise is that investing even a small amount consistently over a period of time can make a huge corpus eventually. And a Systematic Investment Plan (SIP) is perhaps the most sought-after option to do so. Here's why you must go the SIP way at young age:
Creating wealth via the SIP route
It is impossible to commit a lump sum amount to investments unless you have worked for a considerable period. This also means that you start investing late to invest in lump sum amounts. Instead, opt for the systematic investment plans (SIPs) route at a young age to meet your financial goals. A small SIP of ₹10,000 a month done in an equity fund that earns roughly around 12 percent over 10 years will earn you nearly double the total amount invested during the period.
Monthly investment: ₹10,000
Expected return rate: 12%
Investment tenure: 10 years
translates to:
Invested amount: ₹12,00,000
Estimated returns: ₹11,23,391
The total value of the earnings: ₹23,23,391
Persistence helps in the long run
What matters is if you have been persistent with your investments. If you continue to stay invested for 15 years, then:
Monthly investment: ₹10,000
Expected return rate: 12%
Investment tenure: 15 years
translates to
Invested amount: ₹18,00,000
Estimated returns: ₹32,45,760
The total value of the earnings: ₹50,45,760
The longer you stay invested, the bigger money you make.
Stepping up your investments
The effect of inflation continues to eat into our earnings. The prices of some essential commodities have more than doubled or trebled in the last few years. This explains the need to step up your mutual fund investments by a fixed percentage over the entire investment tenure.
The following example illustrates how stepping up your investments regularly by a fixed percentage over the investment tenure can go a long way in helping you accumulate the much-desired corpus.
Monthly investment: ₹10,000
Annual step up: 10%
Expected rate of return: 12%
Investment tenure: 15 years
translates to
Investment amount: ₹38,12,698
Estimated returns: ₹43,65,547
The total value of the earnings: ₹81,78,244
Investing is a long-term process. It’s a game that you cannot afford to leave midway. At what age you started investing is a deciding factor in your financial security. Where you invest relies on your financial goals and risk appetite. How long you stay invested defines how long you allow yourself to earn interest on your money.