Systematic Investment Plans (SIPs) have become one of the most popular ways for salaried individuals, young professionals, and families to build wealth. With the power of rupee cost averaging and compounding, even modest monthly investments can grow significantly over time.
An SIP allows you to invest a fixed amount regularly (usually monthly) in mutual funds: typically equity, debt, or hybrid funds. Your money buys more units when markets are down and fewer when they are up, reducing the average cost per unit over time. Equity mutual funds have historically delivered strong long-term returns in India, often averaging around 12% per annum.
A common dilemma many face is: Should I start with Rs 5,000 per month or stretch to Rs 10,000?
At first glance, the difference may appear straightforward: investing more money should naturally generate higher returns. However, the real impact becomes far more significant when compounding, investment duration and market growth are taken into account.
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Let us look at how much return the two options can generate if a mutual fund provides an interest of 12% per annum.
Calculation For Rs 5,000 SIP
Monthly investment: Rs 5,000
Tenure: 25 years
Total investment: Rs 15 lakh
Expected rate of returns: 12%
Estimated returns: Rs 70.11 lakh
Maturity corpus: Rs 85.11 lakh
Calculation For Rs 10,000 SIP
Monthly investment: Rs 10,000
Tenure: 25 years
Total investment: Rs 30 lakh
Expected rate of returns: 12%
Estimated returns: Rs 1.4 crore
Maturity corpus: Rs 1.7 crore
In this case, there is a gap of almost Rs 85 lakh between the corpus generated by SIPs of Rs 5,000 and Rs 10,000 over 25 years.
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Similarly, with an SIP of Rs 10,000, you can hit the Rs 1 crore milestone in roughly 21 years. Achieving the same with a Rs 5,000 SIP will take you about 27 years.
The Rs 10,000 SIP approximately doubles the corpus at every stage because both your principal and the returns on that larger principal compound over time. The difference becomes dramatically larger with longer horizons thanks to the power of compounding.
To conclude, a Rs 10,000 SIP clearly builds more wealth than a Rs 5,000 SIP over any meaningful time horizon. The difference can turn into crores over 25-30 years.
Whether you choose Rs 5,000 or Rs 10,000, the most important step is to begin your SIP journey. Your future wealth depends on it.
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