Power of Rs 4,000 SIP: How quickly can you generate Rs 60 lakh corpus with just Rs 4,000 monthly investment?
Turning a small monthly investment of Rs 4,000 into a massive corpus of Rs 60 lakh corpus may seem like a distant dream, but it's achievable with the combination of Systematic Investment Plan (SIP) and compounding. Let's understand it better through calculations.
A systematic investment plan (SIP) is a way through which you can invest in mutual funds regularly. Depending on your preference, you can invest a fixed amount daily, weekly, monthly, quarterly, or yearly. With consistency and a disciplined investment plan, you can build a sizeable corpus of Rs 60 lakh with just a Rs 4,000 monthly investment. For example, you can start your investment journey with a small step, for instance, imagine two friends, Leela and Ramesh. They both wanted to save for a dream vacation. Leela started putting aside Rs 500 every month from her pocket money, while Ramesh thought, It is just a small amount, I will start later. Leela continued saving Rs 500 monthly for 5 years. Meanwhile, Ramesh waited for 3 years and then started saving Rs 1,000 monthly for 2 years.
The surprising outcome - At the end of 5 years, Leela had saved an estimated Rs 40,000 (assuming a 12 per cent annualised return), while Ramesh had saved an estimated Rs 27,000. Leela's early start and consistency gave her a decent corpus, showing that small, steady steps can lead to big achievements. On that account, let’s find out how many years it will take to generate this corpus target and what the estimated retirement corpus would be.
Photo source: Pixabay/Representational
Understanding Systematic Investment Plan
Systematic Investment Plan, which is popularly known as SIP, is a method of investing in mutual funds wherein an investor chooses a mutual fund scheme and invests a fixed amount of their choice at fixed intervals.
How does SIP work?
SIP is great for beginners. Once you apply for one or more SIP plans, the amount is automatically debited from your bank account and invested in the mutual funds you have purchased at the predetermined time interval.
When to invest in SIP?
There is no suitable time frame within which an investor should start a SIP investment plan; the sooner the better.
What are benefits of investing early?
To get maximum returns from investment in the long run, one should start investing early. Let’s understand it through an example.
Example of early investment
Rahul starts investing Rs 1,000 per month at age 20.
After 40 years, he gets an estimated Rs 1.18 crore.
His friend, Rohan, starts investing Rs 1,000 per month at age 30.
After 30 years, he gets Rs 35 lakh.
Rahul started 10 years earlier and got 3 times more returns.
SIP calculations
Target corpus: Rs 60 lakh corpus
Monthly investment: Rs 4,000
Annualised return: 12 per cent
How long will it take to build Rs 60 lakh corpus with Rs 4,000 monthly SIP?
It will take approximately 24 years to generate Rs 60 lakh corpus.
How much can Rs 4,000 monthly SIP build in 10 years?
The investment amount will be Rs 4,80,000, the capital gains will be Rs 4,16,144, and the estimated retirement corpus will be Rs 8,96,144.
How much can Rs 4,000 monthly SIP build in 20 years?
The investment amount will be Rs 9,60,000, the capital gains will be Rs 27,19,429, and the estimated retirement corpus will be Rs 36,79,429.
How much can Rs 4,000 monthly SIP build in 24 years?
The investment amount will be Rs 11,52,000, the capital gains will be Rs 48,81,715, and the estimated retirement corpus will be Rs 60,33,715.