How to use SIP Investing effectively ?
The Great Mistake in SIP Investing that most of the people are not investing continuously until the end of the Financial Goal(s). Thus we may not be able to achieve the expected Target Amount or Proper Destination.
This mistake can also affect or change our Family’s Financial Position. It’s like we just setting a Goal and do nothing in a series of work.
For instance, If you need Rs. 1 Crore Corpus in 15 years, then you have to invest a monthly SIP (Systematic Investment Plan) of Rs. 14,800 /- if the expected rate of return is 15 Percent. If the expected rate is 7 Percent, then you have to invest a monthly contribution of Rs. 31,400 /- and if the rate of return is just 11 Percent, the SIP will be Rs. 21,800 monthly.
If you think that your monthly investment is high or not fair with your regular income, then you can extend your deadline say 20 Years Plan. Otherwise, you can start the SIP with a little and then increase the SIP amount by every year. It’s easy for some people when they are getting a pay hike or regular increment on earnings.
For 20 years Plan, you can invest a monthly amount of Rs. 6,600 /- with an assumed returns of 15 Percent to achieve the 1 Crore Rupee Goal. By this way you can adjust the period of years or the investment amount monthly. The Important thing is when would you need that amount.
Generally, the Goal Period is shorter, the greater amount to invest. At the same time, when the Target period is longer, the amount contributed is Less. Everything is based on Power of Compounding – Compound Interest !
As for any investment plan, there are three things to plan – Target Period, the amount of money to invest and the expected rate of returns. Here, the rate of returns is the opportunity where we can find good investments in a long run.
It’s necessary to invest Continuously.
For example, if you are investing a monthly SIP of RS. 700 /- (Just 700 rupees) for the next 20 years with a expected rate of 15 Percent (Opportunity is there in Direct Equity and Equity based Mutual Funds and other Real time business), Finally you will get Rs. 10 Lakh.
Similarly, if you invest Rs. 10,000 /- monthly for next 20 consecutive years, you will get around Rs. 1.51 Crore. As already said about that, for any investment – Invest Continuously.
Let’s take another example, If you invest Rs. 10,000 /- monthly for the next 15 years, you would get Rs. 67.68 Lakh. If you are willing to invest for an additional 5 years – then it will reach you to Rs. 1.51 Crore (20 years). So, we can see the difference how the Compound interest works in Time.
We can also take another one – You are planning and assumed to invest Rs. 10,000 /- monthly for the 20 Years with a rate of return – 15 %
For the first 5 years, you had invested Rs. 10,000 /- monthly is a disciplined manner. Congrats yourself for being good for the first 5 years 🙂
You assumed that you are not invested for the whole 6th year (It’s 12 Months) for some reason. Then from 7th year to till end (20 years), you are invested the monthly contribution of 10,000 Rupees. can you know what is the Maturity amount after 20 years ?
Yes, It’s Rs. 1.41 Crore…
The Gap is around 10 Lakh rupees as compared with the Continuous investing for the 20 Years. Truly, the amount you left without investing is only Rs. 1,20,000 ( 6th year – Rs. 10,000 X 12 months). But, how the Power of Compounding with Time Leads 🙂
Kindly share your views / comments with a smile 🙂