SIP Compounding benefits: As we know financial experts always recommend SIP. The biggest advantage of SIP is compounding. A SIP of Rs 5000 becomes Rs 5 lakh in the first 6 years. The next 5 lakh is made in only 3 years.
SIP Compounding benefits: Systematic Investment Plan called SIP is considered to be the best way of investment. Financial experts recommend that everyone should deposit a fixed amount every month for a long period. Due to the compounding benefit, a small amount over a long period of time creates a huge fund for you. You can use this fund to achieve your big financial goals including retirement, buying a house, buying a car, children’s education. Investors have understood this thing very well, so in the month of December, the figure of SIP has crossed 13500 crores for the first time.
SIP craze due to compounding benefit
The biggest advantage of investing with the help of SIP is compounding. Apart from this, investment can also be started with less money. Inflation also has to be kept in mind while investing for the long term. Apart from this, the possibility of decreasing the value of rupee also cannot be ruled out. With its help you can fulfill big dreams. Apart from this, it will also work as an emergency fund and this method of investment is also very easy. In this article, we will tell you how with a SIP of Rs 5000, you can create a fund of lakhs in the next few years. If you want to take proper advantage of compounding, then investment should be started soon.
5 lakh fund will be made in 6 years
Suppose you started an SIP of Rs 5000 in a mutual fund. Your average return is 12 per cent which is not difficult. After 6 years your total fund becomes Rs 5.28 lakh. Your total deposit amount in 5 years is Rs 3.6 lakh. The returns are around 1.68 lakhs. Overall, your fund is ready for Rs 5.28 lakh.
Fund will be made of 10 lakhs on increasing SIP for 3 years
If you run this SIP for the next 3 years, then your total fund becomes about 10 lakh rupees. Your total deposit amount in 9 years is Rs 5.4 lakh. The return will be of Rs 4.35 lakh. The total return will be Rs 9.75 lakh.
Fund crossed 16 lakhs in next 3 years
If you continue this investment for another 3 years, your total return will be more than Rs.16 lakhs. During 12 years, your total deposit amount will be Rs 7.2 lakh. The return will be of Rs 8.92 lakh. The total value is Rs 16.11 lakh. The above calculation clearly shows that longer the SIP, more will be the benefit of compounding. This is the reason why start investing as soon as possible, so that you can take maximum advantage of compounding.
(Disclaimer: Investment in Mutual Funds is subject to market risks. Consult your advisor before investing)
