Investing in mutual funds has become a popular choice for many people these days. The simplest and most disciplined way to invest in mutual funds is through SIP (Systematic Investment Plan). Through SIP, you can invest a fixed amount every month and build a large fund over the long term.
Nowadays, most people are attracted to investing in mutual funds. Especially those who want to build a large fund for the future by investing small amounts every month find SIP, i.e., Systematic Investment Plan, to be an excellent option. Its biggest advantage is that you can invest a fixed amount every month and gradually build a substantial fund.
How the SIP Formula Works
In SIP, investors invest a fixed amount every month in a mutual fund scheme. The money from that scheme is invested in the stock market and other securities. This money increases every year through compounding. If you invest in it for a long time and assume an estimated annual return of 12 percent, you can earn a very good return.
How Much SIP is Needed to Accumulate ₹10 Lakh
Now, the question arises that if someone wants to create a fund of ₹10 lakh, how much amount should be invested every month and for how many years. For this, three different SIP amount examples are given below.
If you invest ₹2000 every month
Return Estimate: 12 percent per annum
Time Period: 16 years
Total Investment: ₹3,84,000
Return: ₹7,07,619
Total Fund: Approximately ₹10,91,619
By investing only ₹2000 per month, you can create a fund of more than ₹10 lakh after 16 years. In this, your principal capital is less, but you have to give more time.
If you invest ₹3000 every month
Return Estimate: 12 percent per annum
Time Period: 13 years
Total Investment: ₹4,68,000
Return: ₹6,05,501
Total Fund: Approximately ₹10,73,501
By doing an SIP of ₹3000 per month, it will take you 13 years to reach the ₹10 lakh mark. In this example, the investment is slightly higher, but the time taken is slightly less.
If you invest ₹5000 every month
Return Estimate: 12 percent per annum
Time Period: 10 years
Total Investment: ₹6 lakh
Return: ₹5,20,179
Total Fund: Approximately ₹11,20,179
By doing an SIP of ₹5000, you can create a fund of over ₹10 lakh in just 10 years. Here, your monthly investment amount is slightly higher, but it will take less time and you will also get a good return.
Profits are Market-Based
When investing in mutual funds through SIP, the returns depend entirely on the performance of the market. The longer the investment period, the more the effect of compounding will be seen. Generally, an annual return of 12 to 14 percent can be obtained from mutual funds, but this is not fixed.
A Large Fund Can Also Be Created from Small Investments
It is clear that even if someone does not have a large amount of money, they can gradually create a large fund through small investments. If invested with time and patience, you can create a fund of ₹10 lakh even with an SIP of ₹2000 per month.
What are the Features of SIP?
- Easy to invest a fixed amount every month
- Auto-debit investment facility
- Good returns in the long run
- Tax relief on investing in tax-saving funds
- Returns increase rapidly through compounding
Some Important Things Related to SIP
- The earlier you start, the more benefit you will get
- Increasing the SIP amount over time is also a good way
- Risk is reduced by investing for a long time
- Discipline in the monthly investment amount is essential
