As the Systematic Investment Plan (SIP) gains momentum among Indian investors, many people are opting even for small contributions for their long-term wealth creation goals. The mutual fund SIPs allow individuals to invest small amounts regularly across various asset classes and help in creating a substantial corpus within a few years. Generally, financial advisors suggest a long-term investment horizon for higher returns on SIP investments.
Due to their ability to generate higher returns compared to traditional tools like fixed deposits, SIPs are becoming popular even among risk-averse investors and beginners, like young professionals. Due to SEBI's regulations allowing for smaller SIPs, they have become accessible to a larger section of investors, even those with moderate income.
While Rs 500 per month may seem a small amount, even such a modest investment benefits from the power of compounding. For a period of five years, the final corpus may not be very big, but it can certainly take care of smaller financial goals like a domestic vacation or simply add to the overall corpus target.
Let's See How Much Rs 500 Can Grow in 5 Years Through SIP:
Investment: Rs 500 per month
Time period: 5 years
Interest rate: 12% per annum.
Total investment value: Rs 30,000
Estimated returns: Rs 10,552
Final Corpus: Rs 40,552
Investors should take note that this corpus value is not adjusted for inflation. Additionally, while long-term capital gains attract taxes in India, gains realised up to Rs 1.25 lakh in a financial year are tax free. This means that the gains made on this investment will be exempt from taxes.
Even if an investor decides to continue this contribution for 10 years, their maturity corpus will also remain exempt from taxes. For an investment tenure of 5 years, the overall corpus could grow into more than Rs 1 lakh at the same interest rate of 12% per annum.
Here's a look at the growth Rs 500 monthly SIP for 10 years:
Total Investment: Rs 60,000
Interest Rate: 12% per annum
Estimated returns: Rs 52,018
Final corpus value after 10 years: Rs 1.12 lakh
To enhance the overall corpus, financial experts also recommend increasing the SIP amount by 10% annually. For example, after investing Rs 500 per month in the first year, one may choose to raise their contribution to Rs 550 in the second year and continue this habit in the subsequent years. This gradual increase benefits the overall corpus through the power of compounding.
To conclude, SIP investments help in accumulating wealth with even investment of a small amount every month. However, consistency is the key here. It's advisable to evaluate various mutual fund schemes, like equity, debt, or hybrid, before choosing the one that aligns best with your financial goals.
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