How to create wealth by investing via SIP?
Mutual funds offer investors to invest in amounts as small as Rs 500, which helps them to get the habit of investing right from a young age i.e. when they start earning. This enables the creation of a large corpus if investors invest for a longer period of time. SIP offers the benefit of rupee cost averaging to their investors. Investors, who are at an early stage of earning, have a high-risk capacity as compared to mid-earning or pre-retirement and retirement stage investors. So, investors with high-risk capacity can invest the amount in equity-related schemes in their early stage and further, can shift some proportion to debt once they get decent returns from the equity markets.
Let’s look at an example:
If you had invested Rs 1,000 every month in Axis Bluechip Fund on July 1, 2013, then what will be your worth of investment as of July 30, 2021?
Details:
Start date of investment: July 1, 2013
End date of investment: July 30, 2021
Rate of return on SIP: 16.21 per cent
Term of investment: 8 years i.e. 96 months but since you have invested for the month of July also, it will be 97 months
Per month SIP investment amount: Rs 1,000
Worth of investment as of July 30, 2021:
As you can see in the above picture, the worth of investment will be Rs 2,00,696.51. So, you can create wealth by just investing Rs 1,000 every month. In all, invested amount is Rs 97,000 in 8 years, which is increased to Rs 2,00,696.51. As and when your earnings increase, you can increase your SIP amount from Rs 1,000 to Rs 2,000 or Rs 3,000 with whichever amount you are comfortable with. Investing an amount for a longer period of time helps investors to reap maximum returns as compounding is a boon in the longer term.
Let’s take another example,
If you had invested Rs 1,000 per month for 20 years in HDFC Top 100 Fund, then what would be your investment amount as of today?
Start date: July 1, 2001
End date: July 30, 2021
XIRR on SIP: 18.11 per cent
Term of investment: 20 years i.e., 120 months but you have invested for the month of July also, it will be 121 months
Per month SIP investment amount: Rs 1,000
Worth of investment as of July 30, 2021: Rs 19,77,262
Hence, as you can see, this is how the long-term investment can help you reap optimum returns.