Systematic investment plans (SIPs) have become popular for their attractive long-term returns. They are widely favoured for wealth creation over time and have helped many investors achieve major financial goals and dreams.
One of the biggest requirements of SIPs is consistency, which allows compounding to work effectively. In the early years of investing, one may think that they have a long road ahead. People tend to assume that they have plenty of time to start or continue investing. At the age of 25, missing even a year may not feel significant.
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What investors do not realise is that every month of delay or missed contribution can reduce long-term gains significantly. This is why staying invested consistently is considered the key to successful long-term investing.
Assuming an investor starts their investment journey at the age of 25. They begin with Rs 15,000 monthly SIP with a 10% ‘step-up' over 20 years.
In case they miss one year of SIPs, resulting in a total investment period of 19 years. Here's what it could do to their portfolio:
Staying invested for 20 years:
Monthly amount: Rs 15,000
Step Up % (annual): 10%
Investment duration: 20 year
Expected rate of return: 12%
Invested amount: Rs 1,03,09,499
Estimated returns: Rs 1,95,23,573
Total value: Rs 2,98,33,073
Investing only for 19 years:
Monthly amount: Rs 15,000
Step Up % (annual): 10%
Investment duration: 19 year
Expected rate of return: 12%
Invested amount: Rs 92,08,636
Estimated returns: Rs 1,62,23,850
Total value: Rs 2,54,32,487
The above calculation shows a loss of Rs 44 lakh for missing SIPs for just a year. This highlights how powerful compounding can be over the long term. It shows that even a short break in investments can significantly impact final wealth creation.
Assuming that someone decided not to ‘step-up' their contribution and take up a linear path of Rs 15,000 SIP per month over 20 years. They would end up with Rs 1.49 crore corpus. In case, they miss SIPs for one year in this case, the corpus value would stand at Rs 1.31 crore. The difference here also stands at Rs 18 lakh, which is a significant loss of amount.
Small delays or missed contributions may not seem serious in the short term, but they can lead to large opportunity losses in the future. This is because compounding amplifies growth in the later stages of investment. This is why investors are urged to keep a long-term investment horizon and not be easily influenced to pause or discontinue their SIPs due to short-term volatility. For maximum gains, they can also consider talking to certified experts to understand the best path for their investment journey.
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