No, it is not a get rich fast ponzi scheme or an affiliate marketing post. Infact, this is one of the safest and continual investment mode available for individuals of all age group.
SIP or Systematic Investment Plan needs no introduction. In very basic terms, SIP is an investment vehicle wherein you can invest in Mutual funds by allocating a fixed amount every month. Do read Why Should Invest in Systematic Investment Plans to know the benefits of an SIP
Now to come to the title of the post? What is the basis of calculation showing that 5000 invested every month for 3 years would generate a corpus of 2,50000. Well, the calculation is based on the estimated rate of return of what your investment generates.For the calculation used, I have considered a 20% rate of return which though is on the upper side is definitely possible. Even on the lower side considering a modest 8% rate of return, you stand to have a corpus of nearly 2,00000
The total invested amount at the end of 3 years comes out to be (5000*12*3) 1.8 Lakhs. A return of 2 Lakh means a net profit of Rs 20,000 and a return of 2.5 Lakh means a net profit of around Rs 70,000. The net profit may not seem like a huge amount for an investment of Rs 1.8 Lakh but this is where the beauty of an SIP lies.
Would you be more confortable parting away with 5,000 every month or Rs 1.8 Lakh at once?
Hope the answer is the former. We all are looking for making prudent investments and expecting blockbuster gains. But, then there is no short cut to making the investments work. Investment in an SIP helps you A) Gets you into a regular investment habit and B) with capital appreciation and accumulation rather than short term gains
I just chanced upon a basic SIP return calculator launched by Fidelity which can be accessed from here . The page features an image with a ‘Turn’ option on the top. Click on that and you are shown some sort of form which helps you visualize possible returns from SIP investments based on the data you enter. Here is how I derived the calculations for the post title
You can enter the investment amount and the time frame based on your comfort level. The calculator shows you multiple options of the potential corpus amount you stand to have at the end of investment period based on different rates of return (8,10,12,15,18,20). These are general estimates and again an SIP investment does not come with a guarantee that the investment would always bear positive results
So, one can make small but regular investments and stand a chance to look at a huge corpus at the end of investment period. But, there are 100’s of SIP’s available in the market. Will the returns not depend on which SIP I choose?
The returns will definitely depend on the SIP you have invested in. In the end, SIP is nothing but an investment in Mutual Fund. So, on a broader level the choice of an SIP would follow the same rules applicable for mutual funds. A few of them could be
- A reputable Mutual Fund House with a significant fund corpus spread across the portfolio and if you can get your hands on who is going to be the portfolio manager, do a small search on a few funds led by the manager
- SIPs do work on the basic premise that you can invest in them irrespective of whether the stock markets are high or low. However, it is better if you invest when the markets are not witnessing a long term bull phase. Buying stocks at high prices every month does not really deliver the Value Cost Averaging
- Another aspect is the selection of SIP based on which sector the SIP Mutual Fund will invest in. This is generally communicated in the name of the fund itself but if you are confused you might want to read Which is the Best Systematic Investment Plan
What are your experiences of investing in an SIP?