Mutual Fund SIP Calculator: The power of disciplined investment with a small amount is a typical playground for SIP. Even a tiny amount that even a high school student or poor roadside vendor can comfortably afford can create a significant pool.
Mutual Fund investment: The power of compounding in SIPs can create wonders with small investments. (Picture Credit: Freepik)
The campaign Mutual Funds Sahi Hai was launched by the Association of Mutual Funds in India in March 2017. Nothing could have been a more apt slogan for “financialising” India. Since then investment in mutual funds has grown in leaps and bounds in the country.
One of the advertisements showed a young man advising another on the wisdom of putting even Rs 500 into a mutual fund every month.
Mutual Fund investment: Rs 500 bhi sahi hai
It is called Systematic Investment Plan which has become popular across the country as SIP. And not without reason. Let’s see the power of Rs 500 repeated month after month, year after year, decade after decade.
Let’s take a simple vanilla SIP calculator at first.
If one invests Rs 500 every month and continues the investment for 30 years, the amount one makes is Rs 17,64,957 or Rs 17.64 lakh. No exaggeration, plain simple arithmetic.
Two assumptions
There are just two simple assumptions. One, the rate of return has been assumed to be a conservative 12%. It can easily be a little higher if one chooses the mutual fund scheme carefully, in which case the final amount will be more.
Two, one has to continue the investment and not submit to impulse and sell units midway to buy this phone or TV or fridge or even a motorcycle.
Now let’s take one more step ahead and think of a situation where one starts out with a small amount of Rs 500 a month but raises it subsequently by 5% every year. For example, our investor begins by investing Rs 500 per month for the first year and raises it by 5% in the next year.
Therefore, the monthly SIP every month is Rs 500 + 5% of Rs 500 == Rs 500 + Rs 25 = Rs 525 every month. In the third year the monthly SIP rises to Rs 525 + 5% of Rs 525 = Rs 551.25. This way the SIP amount rises by a small amount.
Rs 17 a day
If one can follow this rule for 30 years, the amount accumulated over this period turns out to be Rs 26.37 lakh – a hefty Rs 8.73 lakh more than the first instance where the investor keeps investing just Rs 500 every month for the entire duration.
Let’s face it – Rs 500 a month demands less than Rs 17 a day.
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