Building wealth through a Systematic Investment Plan (SIP) takes time, discipline and patience. But it pays off in the long-term, if you let your money grow for you through the power of compounding.
As investors, you must understand that SIPs work best when you are consistent and have a long-term outlook. Still plans can change as life goes on. Sometimes, a cash flow crunch or an unexpected expense can push you to stop your SIPs. The good part is that it does not prevent your existing corpus from growing. But without contributions, it can have a significant impact on the final value.
- Monthly amount: Rs 11,600
- Step Up % (annual): 10%
- Investment duration: 15 year
- Expected rate of return: 12%
- Invested amount: Rs 44,22,729
- Estimated returns: Rs 56,50,535
- Total value: Rs 1,00,73,265
- The math shows that if you keep investing for 15 years at 10% step-up rate and 12% returns, you will end up with Rs 1 crore corpus.
- ALSO READ: SIP Calculator: Your Rs 5,000 Monthly Investment Turns Into THIS Over 5, 10 And 20 Years
But if you stop midway at year 8, here's how much you may miss out on:
Also Read | Layoffs Are Rising In Tech, But These Skills Are Helping People Unlock Better Pay
- Monthly amount: 11,600
- Step Up % (annual): 10%
- Investment duration: 8 year
- Expected rate of return: 12%
- Invested amount: Rs 15,91,875
- Estimated returns: Rs 9,32,232
- Total value: Rs 25,24,108
Assuming consistent returns, your corpus can reach Rs 25.24 lakh in the first 8 years. If you stop contributing further and simply let this value compound as a lump sum:
- Investment amount: Rs 25,24,108
- Investment duration: 7 years
- Expected rate of return: 12%
- Invested amount: Rs 25,24,108
- Estimated returns: Rs 30,55,890
- Total value: Rs 55,79,998
Your Rs 25.24 lakh will become Rs 55.8 lakh over the next seven years, much less compared to Rs 1 crore you would have earned with continuing SIPs. This is why maintaining SIP discipline matters a lot. The power of compounding also works more effectively during the later years of investment. This is why it is important to plan your investments carefully and leave room for unexpected expenses.
ALSO READ: NPS Swasthya: Key Features, Eligibility, Contributions And Withdrawal Rules
If you face a financial setback, stopping your SIP completely may not be the only option. You could consider reducing your monthly contribution, which will allow your money to keep growing even if it is at a slower pace. Ultimately, this decision depends on your financial goals and risk appetite as you also need to ensure that your essential expenses and emergency savings come first.
Essential Business Intelligence, Sharp Market Insights, Practical Personal Finance Advice, Daily Fuel, Gold and Silver Prices and Latest Stories — On NDTV Profit.
