New Delhi, Delhi
If you think a large amount of money is required to start investing, that is not necessarily the case. Mutual funds allow investors to begin with a small amount through a Systematic Investment Plan (SIP). The key is that combining a long investment horizon with a strategy of increasing the investment every year can help a relatively small investment grow into a substantial corpus.
An investor can start with a monthly SIP of ₹500. However, simply continuing a ₹500 SIP for a long period without increasing the investment is unlikely to generate a corpus worth crores. This is where a step-up SIP can play an important role.
Suppose an investor starts a monthly SIP of ₹500 and increases the SIP amount by 20% every year. If the investment continues for 28 years and an average annual return of 12% is assumed, the estimated total investment could be around ₹49.15 lakh, while the estimated returns could be approximately ₹63.32 lakh. This would bring the total corpus to around ₹1.12 crore.
Compounding plays an important role in this process. Over time, the returns generated by an investment can themselves contribute to generating further returns. This is why the impact of long-term investing can accelerate significantly.
However, mutual fund investments are subject to market risks. The 12% annual return used above is only an assumption for calculation purposes. Actual returns will depend on market conditions and the performance of the selected mutual fund scheme.
Therefore, investors should consider their financial goals, risk tolerance, and investment horizon before starting an SIP. Where necessary, investors may also seek guidance from a registered financial adviser.
