SIP : If you’re looking to create a fund of ₹10 lakh with a small monthly investment of ₹5000, the best way to achieve this is through SIP (Systematic Investment Plan). SIP allows you to invest a fixed amount regularly, and over time, your investment grows, taking advantage of the power of compounding. But there are a few key points to keep in mind. First, you must commit to investing for a long term, and second, maintaining discipline is essential. This means you shouldn’t stop your SIP midway through.
In this article, we will explore how you can reach the target of ₹10 lakh by investing ₹5000 every month through Systematic Investment Plan, considering different return rates. Let’s break it down step by step to understand how long it might take and the returns involved.
How Does SIP Work?
Before diving into the calculations, let’s first understand how SIP works. In an SIP, you commit to investing a fixed sum every month in mutual funds. The amount is then used to buy units of the mutual fund, which rise or fall based on the market’s performance. Over time, as you continue to invest regularly, your investment grows. Since Systematic Investment Plan works on the concept of compounding, your money generates returns on the principal and the accumulated returns.
How Long Will It Take to Build ₹10 Lakh with ₹5000 SIP?
The returns from Systematic Investment Plan are not fixed as they depend on market conditions and the performance of the mutual fund you choose. Historically, based on the performance of mutual funds over the past 10-15 years, SIPs have given returns between 8% to 12% on average.
Here’s an estimate of how long it will take to reach ₹10 lakh based on different annual return rates.
Scenario 1: 8% Return – 11 Years 10 Months
If you get an 8% return per year on your SIP investment, you will need to invest ₹5000 every month for 11 years and 10 months. After this period, your total corpus will grow to ₹10 lakh. Even though this is a relatively conservative return, it’s a realistic expectation for long-term Systematic Investment Plan investments in many equity-based mutual funds.
Scenario 2: 10% Return – 10 Years 3 Months
If you earn a 10% return on your investments annually, it will take you 10 years and 3 months to reach ₹10 lakh. This is a higher rate of return, and many equity mutual funds have historically provided returns in this range. With this higher return rate, your money grows faster, bringing you closer to your goal of ₹10 lakh in less time.
Scenario 3: 12% Return – 9 Years 1 Month
At an even higher 12% return, your monthly ₹5000 SIP will grow to ₹10 lakh in just 9 years and 1 month. This return is typically seen in high-growth equity mutual funds, especially over a long-term investment period. As the return increases, the time taken to reach your target reduces significantly, thanks to the magic of compounding.
What Makes Systematic Investment Plan a Good Investment Strategy?
SIP is a disciplined approach to investing that helps you accumulate wealth over time. By investing small amounts regularly, you benefit from dollar-cost averaging, meaning you buy more units when the market is down and fewer when the market is up. Over time, this strategy helps smooth out market volatility and reduces the impact of short-term market fluctuations.
One of the main benefits of SIP is the ability to start small and still achieve your long-term goals. With ₹5000 per month, you can gradually build a substantial corpus like ₹10 lakh without needing a large lump sum investment upfront.
Conclusion
Building a fund of ₹10 lakh by investing ₹5000 per month through Systematic Investment Plan is entirely achievable, but it requires long-term commitment and discipline. Based on different return rates, you will need to stay invested for anywhere between 9 years to 12 years to reach your goal. SIP allows you to leverage the power of compounding and market growth, enabling you to achieve financial goals over time.
So, if you are looking to create a large sum for future financial needs like retirement, education, or purchasing a home, SIP is one of the most reliable and efficient investment strategies available. Start today, stay disciplined, and let time and compounding work in your favor.
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