How to save Rs 1 crore by starting with investment of Rs 5,400 per month: Follow this SIP trick You need to use certain tips and tricks of SIP to achieve your financial target quickly. Here comes top-up SIP or step-up SIP. While traditional SIPs offer a regimented savings plan, step-up SIPs automatically increase your investment amount at set intervals. How to use step-up SIP to accumulate Rs 1 crore starting with an investment of Rs 5,400 a month
It's certainly not easy to save Rs 1 crore. But with a little discipline and financial knowledge, it may not be as difficult as you think it is. You can accumulate Rs 1 crore even if you start with an investment of just Rs 5,400 every month. Wondering how? Find out here.How to save Rs 1 crore with initial investment of Rs 5,400 per month
Be it a colleague who sits next to you in the office or a fininfluencer (financial influencer) on social media, a lot of people talk about mutual funds all the time. By now, you must be aware of systematic investment plans (SIPs) in mutual funds. SIPs allow you to invest a fixed amount in any mutual fund at a regular interval — daily, weekly or monthly. But merely investing in mutual funds is not enough. You need to use it in a way to help you achieve your financial target quickly. This is where step-up SIPs come to the rescue.In a step-up SIP, you have to increase your investment periodically. Investors mostly increase their investments annually as their income grows. As your investment grows, you have the chance to accumulate more wealth over some time, thanks to the power of compounding.
Regular SIP vs step-up SIP: Impact on your investment
Let me explain it to you. For instance, you open a SIP in a mutual fund with an investment of Rs 5,400 every month. At 12% interest rate per annum, you will get Rs 49.6 lakh after 20 years. Now, increase your investment by 5% every year. So in the second year, you have to invest Rs 5,670 every month. Again, in the third year, you have to hike your monthly investment by 5%; you will invest Rs 5,953.5 every month for a year.
With a 5% hike every year, you will get Rs 68.87 lakh after 20 years. When you raise the SIP investment by 8% per year, you will get Rs 85.92 lakh after 20 years. If you raise the SIP amount by 10% every year, you will get Rs 1.06 crore after 20 years.
SIP mutual fund at 12% return every year
No of years you stay invested
SIP amount every month
Annual increase
Return after 10 years
Return after 15 years
Return after 20 years
Return after 25 years
Rs 5,400
No
Rs 12.09 lakh
Rs 25.07 lakh
Rs 49.67 lakh
Rs 91.9 lakh
Rs 5,400
5%
Rs 14.54 lakh
Rs 33.43 lakh
Rs 68.87 lakh
Rs 1.34 crore
Rs 5,400
8%
Rs 16.32 lakh
Rs 39.66 lakh
Rs 85.92 lakh
Rs 1.74 crore
Rs 5,400
10%
Rs 17.65 lakh
Rs 44.68 lakh
Rs 1.06 crore
Rs 2.12 crore
Rs 5,400
15%
Rs 21.59 lakh
Rs 61.20 lakh
Rs 1.54 crore
Rs 3.65 crore
As you can see, it is very much possible to achieve the goal of becoming a crorepati by starting a monthly SIP of Rs 5,400. All you need to do is increase your SIP amount every year and maintain it for 20 years. Even a small jump in your SIP amount every year can make a huge difference to your final portfolio value over the long run.
How step-up SIP can benefit you in the long run
One prominent reason to adopt a step-up SIP is to accelerate your wealth creation. Do keep in mind that mutual funds can give you attractive returns if you stay invested for the long term. Investors usually run SIPs to achieve various long-term goals such as children's education, marriage, property purchase or retirement. A step-up or top-up SIP is especially beneficial as it not only helps in countering the adverse impact of inflation but also helps you pace your savings according to an increase in income, such as a salary hike. Many salaried individuals get an annual hike, hence most financial advisors suggest increasing the SIP amount every year.Going for step-up SIP? Keep this in mind
The basis of a step-up SIP is that an investor's income will go up every year. So you are opting for a percentage-based step-up SIP, you need to adjust your cash flow accordingly. A job loss or loss of income of a family member can make it difficult to increase your SIP amounts every year.If you stop raising the SIP investment every year, it will impact the total return of your investment. However, if you manage to keep raising it, you will benefit in the long run. In case your rise in income is much more than what we have assumed, you can increase your SIPs by a bigger amount and reach your goal much earlier.
This story originally appeared on: India Times - Author:Faqs of Insurances
