SIP stands for Systematic Investment Plan.
SIP is the best way to invest because:
- Disciplined investment approach – we invest every month
- We get salary every month, we spend every month, so we should also invest every month. SIP gets auto-debited in 1st week of every month allowing us to invest before spending
- We invest at different market levels each month. It leads to rupee-cost averaging
- By investing small amounts monthly, we can create huge wealth in long-term
If you do an SIP of Rs. 15000 p.m for 30 yrs and if rate of return is 15%. Then the wealth accumulated is Rs. 7,82,54,126.
|Yearly % increase in SIP||0%|
|Expected rate of return p.a||15%|
|No. of yrs||30|
|Amount accumulated||Rs. 7,82,54,126|
In the above scenario, SIP amount is constant throughout the 30 year period. If the SIP amount is increased by a certain % every year, see what happens.
|Yearly % increase in SIP||5%||7%||10%||15%|
|Expected rate of return p.a||15%||15%||15%||15%|
|No. of yrs||30||30||30||30|
|Wealth accumulated||Rs. 11,14,01,693||Rs. 13,18,48,913||Rs. 17,55,44,531||Rs. 30,70,18,943|
- If SIP amount is increased by 5% every year, then you will accumulate Rs. 11,14,01,693, which is Rs. 3,31,47,567 more than the wealth accumulated without increasing SIP year-on-year.
- Increasing SIP by 7% every year, wealth accumulated is Rs. 13,18,48,913, more by Rs. 5,35,94,787
- Increasing SIP by 10% every year, wealth accumulated is Rs. 17,55,44,531, more by Rs. 9,72,90,405
- Increasing SIP by 15% every year, wealth accumulated is Rs. 30,70,18,943, more by Rs. 22,87,64,817
It is important to start SIPs and continue for long-term. And it is most important to increase your SIPs every year without fail.