Young Crorepatis: Why Small Early SIPs Beat Large Late Investment

A long-term investment strategy is crucial for wealth accumulation. While returns, asset type and risk appetite are important factors, an investor’s ability to stay invested over a longer tenure could significantly affect the overall earnings. For instance, increasing the tenure by just five years, say from 10 years to 15 years, can make a huge difference to total returns. Mutual funds have become popular investment instruments in the last few years as they offer higher returns and more flexibility in terms of tenure and investment amount.  

Over a long-term horizon, mutual funds could be helpful in building a sizeable corpus due to the power of compounding. The longer your money stays invested, the larger the wealth it can generate. Even small, consistent contributions can grow into a large corpus of Rs 1 crore over time. Mutual funds allow investing a large amount upfront through lump sum schemes and small amounts every month via systematic investment plans (SIPs). To build a corpus of Rs 1 crore, choosing between the two can prove confusing.

Early SIP versus lump sum investment: Let's understand which of the two could be more rewarding for your crorepati goal.

If you are a young investor, it is advisable to start early to realise. An early SIP helps in minimising risks and maximising gains due to rupee-cost averaging and the power of compounding. Here, time in the market becomes more rewarding than timing the market. The longer the duration, the higher the returns in SIPs. On the other hand, for lump sum investments, timing the market is crucial. You can gain more by investing a lump sum amount during a market slump.

In order to achieve your crorepati goal, it is advisable to start early, even with a smaller amount, instead of waiting for the right time to invest a large sum.   

Early SIP vs Late Lump Sum Investment: Key Factors To Consider For Building Rs 1 Crore   

·      Starting early allows your investments to earn more due to a longer horizon. Here, the power of compounding helps to generate higher returns.

·      Over a long-term horizon, rupee-cost averaging helps to minimise the impact of market volatility, allowing your SIP investments to grow steadily.

·      SIPs also inculcate a habit of disciplined saving and automating your savings helps you stay committed to a long-term goal like building Rs 1 crore.

·      SIPs also eliminate the pressure to keep a watch on market movements by allowing you to invest across all market cycles.

·      Late lump sum investments could be riskier, but investing a large amount during a market correction could help yield higher returns.

·      A lump sum investment allows your entire principal to earn interest from day one, which could be more rewarding in a bullish market.

Building a corpus of Rs 1 crore requires consistency and financial discipline over the years. Both SIPs and lump sum investments come with their own advantages and risks. It is advisable to consult a certified expert to evaluate all key factors before choosing any of these investment instruments.