Starting an investment early and staying invested consistently over the long term can turn even a small amount into a substantial corpus. A Systematic Investment Plan (SIP) in mutual funds is one way to achieve this. For instance, if you start an SIP of just ₹2,000 per month and continue it for the long haul, there is a possibility of accumulating a fund exceeding ₹1 crore. However, this requires staying invested for many years and earning good market returns.

Compounding plays the most crucial role here. With compounding, the returns earned on your initial investment also start generating further returns. However, it is important to understand that returns in the stock market or equity mutual funds are not guaranteed; they can vary based on market performance.

How large a fund can a ₹2,000 SIP create?
If an individual invests ₹2,000 monthly and earns an average annual return of 12%, their total investment over 35 years would amount to ₹8.4 lakh. Thanks to the power of compounding, this sum could grow to over ₹1 crore during that period.

This implies that the duration of the investment makes a bigger difference than the investment amount itself. The longer the money remains invested, the more time compounding has to work its magic.

How long does it take to become a crorepati?

Achieving a target of ₹1 crore through a ₹2,000 SIP could take around 35 years, assuming an average return of 12%. This means that if someone starts investing at age 25 and maintains the SIP over the long term, they could build a substantial corpus by the time they approach retirement.

However, a 12% return is not guaranteed. The market may perform well in some years, while the investment value could drop during others. Therefore, maintaining a long-term perspective is essential when investing via SIPs.

Stopping an SIP midway can prove costly.
Starting an SIP is easy, but the real challenge lies in continuing it over the long term. Many investors panic when the market falls and stop their SIPs. This can diminish the benefits of compounding.

Additionally, frequently withdrawing money from investments when the need arises can delay the achievement of your financial goals. Therefore, it is important to maintain your SIP in alignment with your long-term financial objectives.

Increase your SIP as your income grows
If your income rises over time, instead of sticking to a fixed SIP of ₹2,000, you can opt for a 'Step-up SIP.' In this method, the SIP amount is increased annually or at specific intervals.

For instance, after starting with ₹2,000, you could increase the amount to ₹2,500, ₹3,000, or more as your income grows. This increases the total investment corpus and enhances the likelihood of reaching a target of ₹1 crore ahead of schedule. However, before investing, you should consider your income, risk appetite, and financial goals.

PC Social Media