India is expected to become a USD 30-trillion economy by 2050 due to strong consumption and exports, according to HDFC Bank chairman Atanu Chakraborty. Arvind Panagariya, the Chairman of the 16th Finance Commission, believes India is on the cusp of significant economic growth. He predicts a rise from 7% to nearly 9% in the next five years, fueled by increased business investment.
This economic boom is expected to create a wealth creation opportunity for everyone. Systematic Investment Plan (SIP) can be a powerful tool to benefit from this growth. SIP allows you to invest a fixed amount of money regularly in a mutual fund scheme. This inculcates financial discipline and helps average out the cost of investment over a long period.
Power of SIP
Let’s look at the potential of SIP with an example. Consider you invest Rs 2,500 every month in a mutual fund scheme that offers an expected annual return of 17%. We are not taking inflation into account for this example. Here’s how your investment would grow over time:
| Duration (Years) | SIP Amount (₹) | Future Value (₹) |
|---|---|---|
| 5 | 2,500 | 2,40,000 |
| 8 | 2,500 | 5,10,000 |
| 10 | 2,500 | 7,90,000 |
| 12 | 2,500 | 11,80,000 |
| 15 | 2,500 | 20,70,000 |
| 18 | 2,500 | 35,60,000 |
| 20 | 2,500 | 50,60,000 |
| 22 | 2,500 | 71,60,000 |
| 25 | 2,500 | 1,20,00,000 |
| 28 | 2,500 | 2,00,00,000 |
| 30 | 2,500 | 2,80,00,000 |
As you can see, a monthly investment of Rs 2,500 can grow to Rs 2.8 crore in 30 years at an expected annual return of 17%. This translates to a total wealth gain of Rs 2.72 crore.
By investing Rs 900,000 over the course of the chosen duration, investors can expect a future value of Rs 28,144,160 (2.8 Crores). This signifies a remarkable wealth gain of Rs 27,244,160 (2.7 Crores) over the investment period, highlighting the potential of SIPs to significantly multiply invested capital.
Important Points to Consider
- Expected Return: The assumed return of 17% in this example is for illustration purposes only. The actual returns you earn will depend on the performance of the mutual fund scheme you choose.
- Inflation: Inflation is not factored into this example. Inflation reduces the purchasing power of money over time. Therefore, a return of 17% may not necessarily translate to a significant increase in your standard of living if inflation is high.
- Investment Horizon: The longer you invest, the greater the potential benefit of SIP. As seen in the table, the future value increases significantly as the investment tenure increases.
- Discipline: SIP inculcates financial discipline by encouraging you to invest regularly. This helps you avoid the temptation to time the market and potentially miss out on potential gains.
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.)