"Little drops of water make the mighty ocean"
Systematic Investment Plan (SIP) is nothing but small amount of money invested on a pre-set date every month into specific mutual fund/funds. One of the best ways of entering equitymarket is through Systematic Investment Plans (SIPs) in equity mutual funds, as it brings in an investment discipline for the investor. SIPs help to achieve financial goals by investing small sums of money on a monthly basis that eventually leads to accumulating the required corpus for reaching thegoal.
Ideally, to reap the benefits of SIPs, the investment horizon should be for longer term. Longer the investment horizon, better the wealth accumulation.
(At an assumed rate of 12% p.a)
|Number of years||10||20||30|
|No. of Months Invested||120||240||360|
|Monthly Investment Amount||-15000||-7500||-5000|
|Mutual Fund Return (Assumed)||12%||12%||12%|
|Total Amount Invested||-1800000||-1800000||-1800000|
|Estimated Redemption Amount||3,360,538||6,898,930||15,404,866|
When we look at the corpus accumulated at the end of the tenor, the wealth accumulation is at its best in the long run. As the time given to investment increases, the wealth builds at an accelerated pace because of compounding effect. As per the illustration given above, the difference between the RD and the Equity Mutual fund SIP, could be more than double in the long run.