Systematic Investment Plans (SIPs) in mutual funds are one of the most popular financial investment tools these days. Considered beneficial for long-term wealth creation, mutual fund SIPs take advantage of compounding.
By investing regularly, SIPs help investors benefit from compounding and market discipline. Given mutual funds' track record to deliver higher returns than many traditional assets, they are ideal even for durations such as 10 years. Such a period allows the wealth to benefit from compounding while spreading risks over time.
Even if someone starts their SIP journey at 50, considering they retire in 10 years, disciplined investing habits can help accumulate substantial corpus and generate a steady income during post-retirement years.
Also Read: Step-Up SIP: Why Does It Make Sense In Current Volatile Market Conditions?
Assuming, someone decides to invest Rs 20,000 per month, starting at the age of 50 and gets an annual return of 12% in mutual fund SIP, here what their investment could look like.
Monthly amount: Rs 20,000
Step Up % (annual): 20%
Investment duration: 10 year
Expected rate of return: 12%
Invested amount: Rs 62,30,083
Estimated returns: Rs 38,92,570
Total value: Rs 1,01,22,653
Annual Step Up Can Boost Corpus
Generally, when people start investing at a later stage, they tend to go for a higher SIP amount to make up for the lost time. This is because higher initial SIPs can boost the power of compounding. However, even with a small SIP amount of Rs 20,000, reaching a Rs 1 crore goal is not very difficult.
The key is to raise the annual SIP amount by more than the usual 10%. Increasing it by 20% each year allows investors to contribute significantly more over time, while ensuring the higher investment does not strain their lifestyle or monthly expenses.
Investors may also consider alternative asset classes such as gold. The precious metal has gained popularity following its strong recent rally. However, any investment decision should be made after carefully assessing risk appetite, financial goals and time horizon. It is always advisable to consult a financial expert before making allocation choices.
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