Systematic Investment Plan (SIP) is a popular investment strategy in India that allows you to invest a fixed amount of money regularly in a mutual fund scheme. SIP inculcates financial discipline and helps you benefit from rupee-cost averaging, which evens out the impact of market volatility on your investment. This article will explain how SIP can help you grow your wealth significantly over time and compare it with other popular investment options in India.
Understanding SIP with an Example
Let’s consider an example to understand how SIP works and the potential returns you can expect. Imagine you start a monthly SIP of Rs. 5,000 in a mutual fund scheme with an expected annual return of 15%. The table below shows how your investment would grow over different durations:
| Duration (Years) | SIP Amount (₹) | Future Value (₹) |
|---|---|---|
| 5 | 5,000 | 4.5 Lakhs |
| 8 | 5,000 | 9.3 Lakhs |
| 10 | 5,000 | 13.9 Lakhs |
| 12 | 5,000 | 20.2 Lakhs |
| 15 | 5,000 | 33.8 Lakhs |
| 18 | 5,000 | 55.2 Lakhs |
| 20 | 5,000 | 75.8 Lakhs |
| 22 | 5,000 | 1 Crore |
| 25 | 5,000 | 1.6 Crores |
| 28 | 5,000 | 2.6 Crores |
| 30 | 5,000 | 3.5 Crores |
As you can see, a monthly investment of Rs. 5,000 can grow to Rs. 3.5 crores in 30 years at an expected annual return of 15%. This highlights the power of compounding and disciplined investing through SIP.
Decoding the SIP
The example above showcases the potential growth achievable through SIP. Here’s a breakdown of the key figures:
- Expected Amount (Rs. 3.5 Crores): This represents the total accumulated amount in your SIP after 30 years, including both your invested capital and the returns generated.
- Amount Invested (Rs. 18 Lakhs): This is the total sum of money you would have invested through your monthly SIP contributions over 30 years (30 years * 12 months/year * Rs. 5,000/month).
- Wealth Gain (Rs. 3.32 Crores): This represents the profit earned on your investment. It’s calculated by subtracting the total amount invested (Rs. 18 lakhs) from the expected amount (Rs. 3.5 crores).
SIP vs Popular Investment Options in India
SIP offers several advantages over traditional investment options like fixed deposits (FDs) or savings accounts. Here’s a comparison of SIP with some popular investment options in India:
| Investment Option | Interest rate (%) | Features |
|---|---|---|
| Sukanya Samriddhi Account Scheme | 8.2 | Account for girl child, tax benefits |
| Senior Citizen Savings Scheme | 8.2 | Higher interest rate for senior citizens |
| National Savings Certificate (VIII Issue) | 7.7 | Fixed interest payout, moderate returns |
| Kisan Vikas Patra | 7.5 | Maturity period of 115 months |
| Mahila Samman Savings Certificate | 7.5 | Account for women, moderate returns |
| SIP (Mutual Funds) | Expected return varies | Market-linked returns, potential for higher growth |
Key takeaway: SIP offers the potential for higher returns compared to traditional fixed-income investment options. However, SIPs are subject to market volatility.
Important Note: The expected return of 15% used in the example is for illustrative purposes only. Actual returns from SIPs can vary depending on the chosen mutual fund scheme and market conditions.
Disclaimer: (This information is provided solely for informational purposes. It is important to note that investing in the market or a business idea involves market risks. Before investing money as an investor/ owner/ partner, always consult an expert. DNP News Network Private Limited never advises to invest money on stocks or any specific business idea. We will not be liable for any financial losses.)
