Systematic Investment Plans (SIPs) are one of the most popular ways to build wealth over time. However, many investors face difficulty in determining the right amount to invest and the right tenure for their SIP investments.
The choice of SIP amount and tenure greatly influences the overall return. In this article, we will take a scenario-based approach to understand how to decide the amount and time for SIP investments based on individual financial goals and circumstances.
Let’s see how 2 different scenarios play out when invested at a 12% annualised return.
SIP Calculator Results: ₹5,100 Monthly for 15 Years
When you plug the numbers into a SIP calculator, here’s what you get:
- Monthly SIP Amount: ₹5,100
- Investment Duration: 15 years
- Expected Rate of Return: 12% annually
- Invested Amount: ₹9,18,000
- Estimated Returns: ₹16,55,338
- Total Corpus: ₹25,73,338
A relatively small monthly SIP of ₹5,100 over 15 years results in a total corpus of ₹25.73 lakh. The extended tenure significantly boosts the returns due to the power of compounding.
Open a SIP Calculator and start the calculations.
SIP Calculator Results: ₹11,000 Monthly for 7 Years
When you plug the numbers into a SIP calculator, here’s what you get:
- Monthly SIP Amount: ₹11,000
- Investment Duration: 7 years
- Expected Rate of Return: 12% annually
- Invested Amount: ₹9,24,000
- Estimated Returns: ₹5,27,769
- Total Corpus: ₹14,51,769
Investing ₹11,000 monthly for 7 years results in a corpus of ₹14.51 lakh. While this option involves a higher monthly contribution, the shorter tenure limits the potential returns compared to the longer duration in Scenario 1.
Which Works Best?
- Best for Long-Term Growth: ₹5,100 SIP for 15 Years – The power of compounding works best over a long duration. Even with a smaller monthly SIP, the 15-year tenure results in the highest total corpus.
- Best for Mid-Term Goals: ₹11,000 SIP for 7 Years – This is a good balance between investment amount and time. However, the shorter duration limits the returns compared to a longer tenure.
Conclusion
The 15-year SIP with ₹5,100 monthly offers the best potential due to the long compounding period. However, if you’re working towards medium or short-term goals and can afford higher monthly contributions, the ₹11,000 for 7 years might be more suitable.
In all cases, starting early and staying disciplined with SIP investments will help you reach your financial goals, whether they are long-term or short-term. The key takeaway is that longer investment periods allow for more compounding and growth.
Ensure steady returns with systematic withdrawals! Estimate your withdrawals with our SWP Calculator and manage your finances seamlessly.
Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. This does not constitute a personal recommendation/investment advice. It does not aim to influence any individual or entity to make investment decisions. Recipients should conduct their own research and assessments to form an independent opinion about investment decisions.
Mutual Fund investments are subject to market risks, read all scheme-related documents carefully.