Saving money every month is easy. It is to make a habit of investing that every budding investor struggles with. A monthly saving of ₹5,000 might not seem much for a person just starting their investment journey.
But over a period of time, when they decide to invest it and let it grow, the returns could be rewarding
A monthly SIP is a great way to develop that habit.
Let us understand how much we can expect to earn from a SIP of ₹5,000
First understand that it is a Systematic Investment Plan. That means instead of investing a lump-sum amount, you keep investing ₹5,000 every month in a particular mutual fund scheme.
So, if you keep doing this for 10 years, your total contribution would amount to,
₹5,000 × 12 × 10 = ₹6,00,000
This is the amount that you would have contributed to your SIP
However, with good market returns, your investment could grow exponentially over a period of 10 years.
A SIP of ₹5,000 every month can potentially grow to about ₹11.6 lakh in 10 years with an average annual return of 12%
So, you can expect to earn around ₹6 lakh as your contribution and ₹5.6 lakh as your profit from the mutual fund.
However, it is to be noted that 12% is just an assumed value, the actual return on your investment may differ.
The secret to making SIPs work for you lies in the following
Time is your best friend when it comes to SIPs. The longer you keep your money invested, the more it will grow exponentially with the power of compounding.
While it may not seem like much at first, the power of compounding will have a significant impact on your investment in the long run.
So it is important to start as soon as you can, even with small amounts.
While it may seem like a good idea to start with a large corpus, remember that any amount can work for you when it comes to SIPs. Many investors give up trying to invest because they feel that they do not have enough money to start with.
But all it takes to get started is a small, regular investment like a SIP of ₹5,000.
Once you have developed a habit of investing regularly, you can revise your SIP amount upwards as and when your income increases.
For example, you can add an additional ₹500 to ₹1,000 to your SIP amount, every time there is a hike in your salary. This added amount can have a significant impact on your investment in the long run.
However, before you get started, please keep the following in mind.
Mutual funds are market linked instruments and therefore, there are no assured returns.
It is important to assess your investment goals, time frame and risk appetite; before opening a SIP account with any particular mutual fund.
You should also keep aside some money for your emergency fund and clear any existing debts with a high rate of interest before considering a SIP.
₹5,000 may seem to be a small amount every month. But, it has the potential to reward you with large returns in the future. The larger lesson here is to get started with your SIP as soon as possible and keep investing regularly. Let your investment grow with time and you will reap the benefits of good returns in no time.