SIP to 1 Crore: You can create a fund worth crores with just a SIP of Rs 1,000 per month. Know how step-up SIP can increase your earnings every year and how this small investment turns into big returns in the long term.
SIP Investment Plan: If you also want to create a big fund of Rs 1 crore by small savings every month, then SIP (Systematic Investment Plan) can be the easiest and best option. In SIP, you invest a fixed amount every month in a mutual fund and over time your money grows rapidly through compounding and RCA (Rupee Cost Averaging). Know how it works and how you can create a fund worth crores in 20 years by starting from Rs 1,000 per month.
How does SIP work?
1. Rupee Cost Averaging (RCA)
There are two magic formulas at work in SIP, the first of which is RCA. When the market is up, you buy fewer units and when the market is down, you buy more units. This reduces the average cost of your investment and you get good returns.
2. Power of Compounding
Compounding means making money on money. The longer your investment lasts, the faster it grows. As returns are reinvested, your fund automatically grows manifold.
Why is SIP beneficial?
The biggest advantage of SIP is that it brings discipline in investment. Every month, a fixed amount is automatically deducted from your bank account, so that you invest with consistency instead of emotions. If you want, you can start a step-up SIP, in which you increase your investment a little every year, just as your salary increases.
How does Step-up SIP grow your money?
Suppose you start SIP with Rs 1,000 per month and get 15% CAGR return for 20 years, then your fund will be around Rs 13.27 lakh. But if you increase the SIP amount by 10% every year, like Rs 1,000 in the first year, then Rs 1,000, then Rs 1,210 and then keep increasing the SIP amount by 10% every year, then in 20 years the same amount will increase to around Rs 25 lakh! That means, with just 10% annual increase, your SIP benefit can almost double.
Is 15% CAGR available in SIP?
There are more than 100 equity mutual funds in India, which have a track record of 20 years. Of these, more than 55 funds have given returns ranging from 10% to 19.62% CAGR. Therefore, an average return of 15% can be quite possible if invested for the long term.
How to create a fund of Rs 1 crore?
If you do a SIP of Rs 7,500 per month and get 15% CAGR, then you can create a fund of Rs 1 crore in 20 years. Meaning, you can create this fund by saving only Rs 250 every day. If you increase the SIP amount by 10% every year, you can reach Rs 1 crore in just 17 years. Meaning, with Step-up SIP you can get 3 years ahead in the race of becoming a millionaire.
Important precautions for investors
- Past returns of mutual funds are not a guarantee of future returns.
- Market fluctuations, economic conditions and fund management can affect returns.
- Always understand your risk profile and research funds before investing.
Disclaimer: This article is for general information only. The information given herein is not investment advice. Investing in mutual funds and SIPs is subject to market risks. Before investing, definitely take advice from your financial advisor or SEBI registered expert.
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