20X20x20 SIP Formula: Are you planning for your retirement and looking for an investment option that can help accumulate wealth in the long term? If so, then you can consider mutual funds. They are an asset class that invests money in various assets like stocks, equities and bonds on behalf of investors. There are two types of investments in mutual funds: one-time investment/lump sum investment and monthly investment.
SIP is an investment strategy that allows investors to invest money based on their financial capacity in mutual funds. It offers investment flexibility, allowing investors to pause, withdraw, or increase their SIP contributions.
In SIP, there are certain formulas that are helpful in creating a rough roadmap for investing. One of the popular SIP formulas is the 20X20x20 formula. What is this formula, and how does it work? Let’s understand in this write-up –
Benefits of SIP investment
Power of Compounding
No lock-in period, investor gets to choose
Rupee cost averaging
What is the minimum amount one can invest in SIP?
One can start investing in a SIP mutual fund with as low as Rs 500 per month.
What is the maximum amount one can invest in SIP?
There is no maximum limit for investing in SIP mutual funds. So, you can invest as much as you can.
Retirement Planning with SIP: What is the 20X20x20 formula?
The 20X20x20 formula is a financial strategy that helps people invest in mutual funds through SIPs and accumulate wealth. Using this formula, investors can accumulate approximately Rs 5 crore in just 20 years. Let’s find out how –
How does the 20X20x20 SIP formula work? Let’s break down
According to the formula, the three “20s” denote three different things:
First “20” represents the monthly investment in SIP.
Second “20” represents the annualised return rate.
Third “20” shows the number of investment years.
Investment in mutual fund: 20X20x20 SIP formula
Thus, following this formula, the investor will have to invest Rs 20,000 in SIP every month for 20 years, with an annual return rate of 20 per cent.
Let’s apply the 20X20x20 SIP Formula: See example
Now, let’s apply the 20X20x20 SIP Formula and calculate how much corpus one can accumulate in 20 years with a 20 per cent annual interest rate:
20X20x20 SIP Formula: How much money do you need to invest in 20 years?
According to the calculation, if a person invests Rs 20,000 every month in SIP for 20 years, then he/she will invest a total of Rs 48,00,000.
20X20x20 SIP Formula: What will be the estimated capital gains?
Since the estimated annual return is 20 per cent, the estimated capital gain in 20 years will be around Rs 4,47,23,880.
20X20x20 SIP Formula: How much money would the investor receive in total?
Now, after 20 years, the investor will receive a total of approximately Rs 4,95,23,880. It should be noted that this is the sum of your initial investment and the capital gains made from it.
20X20x20 Formula: Full SIP calculation
Monthly investment: Rs 20,000
Total investment: Rs 48,00,000 in 20 years
Estimated Capital Gain: Rs 4,47,23,880
Total Amount Received: Rs 4,95,23,880