SIP: We have all heard the story of the hare and the tortoise, which teaches us that small but consistent steps are what help us achieve our goals in the long run. Similarly, by regularly investing small amounts, you too can accumulate a substantial sum over time.
When you look at it, achieving big goals with such small amounts can seem almost impossible. But, this happens — a substantial fund can be built through small daily savings or modest monthly investments.
Let’s understand this with an example. Suppose you save Rs 50 daily and invest that money in a market-linked investment plan — such as a mutual fund — through an SIP (Systematic Investment Plan), over the long term. Now, can you imagine that this small daily investment can easily build a substantial fund? This is achievable assuming an annual return of 12 per cent on your investment. What does saving Rs 50 actually mean?
Rs 50 saved a day means Rs 18,250 saved a year, or Rs 1,500 a month.
Is saving Rs 18,250 a big deal?
A financial rule says that you should save at least 20 per cent of your monthly income.
If your monthly savings are Rs 1,500, it means someone earning a salary close to Rs 7,500 a month can save that amount.
If your salary is more than Rs 7,500 a month, you can save more money. But let’s keep your benchmark of saving Rs 1,500 a month.
What can a Rs 1,500 monthly savings do for you?
Let’s assume that you save Rs 1,500 a month and invest that amount in mutual funds through SIP.
If you get a 12 per cent return on that investment, your expected amount in 15 years will be Rs 7,13,897, while your total investment by that time will be Rs 2,70,000.
Your long-term capital gains will be Rs 4,43,897.
However, the real magic of SIP compounding growth starts after 15 years of investment.
What will an Rs 1,500 per month investment give you in 20 years?
Now, we take this investment forward to another ten years, i.e., a total of 25 years.
At this stage, your expected amount will be Rs 25,53,310, while your investment will be Rs 4,50,000. It means long-term capital gains will be Rs 21,03,310.
What will an Rs 1,500 per month investment give you in 30 years?
After 30 years, your investment grows faster.
After 30 years, your investment will be Rs 5,40,000, but your long-term capital gains will be Rs 40,81,460.
It means your expected amount will be Rs 46,21,460.
What will an Rs 1,500 per month investment give you in 37 years?
After 37 years, your Rs 50 savings a day, or Rs 1,500 investment a month, can help you achieve crorepati status.
Here’s what your mutual fund investment would look like: Your total investment will be 6,66,000, but your long-term capital gains will be Rs 97,43,777, and your expected wealth will be Rs 1,04,09,777.
Now, 37 years is a long time. But if you start investing early, i.e., at 25 years, you can build a corpus of over Rs 1 crore by the time you reach 62 years, and that too with just Rs 50 saved a day or Rs 1,500 monthly investment.
(Disclaimer: Our calculations are projections and not investment advice. Do your own due diligence or consult an expert for financial planning.)