Why young adults must adopt the SIP route to create wealth

Updated: 27 Nov 2022, 01:57 PM IST
TL;DR.

The SIP route is a time-tested way to create wealth. This is why the youth must rely on gradual investments to reach their financial goals.

The Power of Compounding is evident in SIP investments.

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. 

What is an SIP?
First Published: 27 Nov 2022, 01:57 PM IST