The Mathematics Of Regret: Cost Of Starting SIP Late By 1 Year
The cost of starting a Systematic Investment Plan (SIP) late by just one year is high due to the loss of compounding benefits.
One of the best ways to grow your wealth is to invest in different assets. In this regard, among the most popular options in India currently are mutual funds. Systematic Investment Plans (SIPs) for investing in mutual funds have become increasingly popular over the years.
However, many aspiring investors hesitate, waiting for the "perfect" moment, or simply procrastinate. This delay often comes with a hidden cost: a cost that can be mathematically quantified.
The cost of starting a Systematic Investment Plan (SIP) late by just one year is high due to the loss of compounding benefits. Starting your SIP early allows your investments more time to compound, exponentially increasing the final corpus.
To illustrate, we will see how an SIP of 15,000 gives a much lower corpus if the investment tenures are reduced by just one year.
Investing In SIPs For 20 Years
Monthly investment: Rs 15,000
Expected returns: 12%
Total investment: Rs 36 lakh
Estimated returns: Rs 1.02 crore
Maturity corpus: Rs 1.38 crore
Investing In SIPs For 19 Years
Monthly investment: Rs 15,000
Expected returns: 12%
Total investment: Rs 34.2 lakh
Estimated returns: Rs 87.29 lakh
Maturity corpus: Rs 1.21 crore
In this calculation, we can see that the investor loses out on Rs 17 lakh because of delaying the SIP by one year.
The hidden cost of delay is often underestimated. To reach the same corpus which one can get by starting one year earlier, monthly SIP contributions must be significantly higher.
Without increasing SIP amounts, the accumulated corpus will be substantially smaller. Further, delaying SIPs means fewer instalments, reducing the benefit of investing during market dips.
To conclude, the best time to start investing in SIPs is now, not next year or later. The combination of rupee-cost averaging and compounding returns over the long term can dramatically change your financial future. The cost of delaying your SIP isn't just the missed investment; it's the missed compounding opportunity on that investment.
