A mutual fund offers investors the flexibility to invest either through a lump sum payment or a SIP, enabling them to build substantial wealth by harnessing the power of compounding.
SIPs (Systematic Investment Plans) in mutual funds help investors to regularly invest a pre-determined amount of money. The most prevalent form of SIP is the monthly SIP, wherein a fixed sum is invested in the chosen mutual fund on a specified date each month.
While mutual fund SIPs can be profitable, it’s important to find the right fund and commit to long-term investing. Using a mutual fund calculator can help in choosing the best mutual fund and monitoring your investment progress over time.
Compounding impact of SIP investments
Mutual fund compounding allows investors to earn interest on their invested funds and reinvest the returns, generating further interest over time. The compounding impact of SIP investments allows income generation not only from the initial investment but also from the subsequent interest earned.
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If you start investing Rs 1,000 at the age of 20, Rs 3,000 at the age of 30, and Rs 4,000 at the age of 40, you will retire a crorepati by the age of 60! This is the power of compounding and consistency.
Rs 1,000 SIP with 12% annualised return
Let’s for example take this calculation, an SIP of Rs 1,000 per month in a mutual fund scheme with contributions for 40 years at an annualised return of 12% can take you to Rs 1.19 crore corpus. If this monthly SIP is increased by 10% every year, your corpus can be Rs 3.5 crore.
Rs 3,000 SIP with 12% annualised return
If you invest Rs 3,000 in SIP and the duration is decreased to 30 years with 12% annualised return, the total corpus would be Rs 1.05 crore. If the SIP amount is increased by 10% every year, the corpus would be Rs 2.65 crore.
Rs 4,000 SIP with 12% annualised return
In the last scenario, if you start your 4,000 SIP at the age of 40 and make contribution for 20 years with annualised return on investment of 12%, you can build a corpus of Rs 40 lakh.
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