Building a large investment corpus does not always require a high monthly income. A disciplined approach to Systematic Investment Plans (SIPs) can help investors accumulate wealth over the long term, with the power of compounding playing a key role.
For instance, consider an individual earning ₹20,000 a month. Under the 50-30-20 budgeting approach, 50% of the income can be allocated towards essential expenses, 30% towards lifestyle and discretionary spending, and the remaining 20% towards savings and investments.
In this example, 20% of a ₹20,000 monthly salary amounts to ₹4,000. Investing this amount every month through an SIP could potentially create a substantial corpus over several decades.
₹4,000 SIP to ₹1.38 Crore
According to the calculation cited in the report, if an investor puts ₹4,000 every month into an SIP and the investment earns an assumed average annual return of 12%, the corpus could grow to approximately ₹1.38 crore after 28 years.
However, the figure is only an illustration. Mutual fund returns are market-linked and are not guaranteed. Actual returns may be higher or lower depending on market performance and the investment chosen.
Fixed SIP vs Step-Up SIP
Investors can also choose different approaches to SIP investing. In a fixed SIP, the same amount is invested every month for the investment period.
A step-up SIP, on the other hand, allows investors to increase their monthly contribution periodically, generally as their income rises. Increasing the SIP amount over time can potentially help investors build a larger corpus and reach their financial goals sooner.
The key factors remain regular investing, a long investment horizon and allowing compounding to work over time. Investors should also consider their financial goals and risk tolerance before selecting an investment.
