SIP Calculation: A monthly investment of ₹1,000 can build a fund of ₹13 lakh—understand how through this calculation..

In today’s world, you do not need a large salary or a substantial lump sum to start investing. Even if you can save just ₹1,000 per month, you can build a significant corpus over the long term through a Systematic Investment Plan (SIP) in mutual funds. The real benefit is realized when you continue investing over a long period, allowing your returns to generate further returns—a process known as "compounding."

But the question arises: how much could you accumulate after 20 years by investing ₹1,000 every month via an SIP? The answer depends on the annual rate of return earned on your investment.

How much will you contribute from your own pocket over 20 years?
If you start an SIP of ₹1,000 per month, your annual investment will be ₹12,000. Consequently, if you continue this for 20 years, your total out-of-pocket contribution will amount to ₹2.40 lakh.

Over time, the returns earned on this amount will accumulate. In the long run, these returns can multiply your total corpus significantly.

What if you earn a 10% return?
Suppose your Systematic Investment Plan earns an average annual return of 10%. In this scenario, after 20 years, your total corpus could grow to approximately ₹7.18 lakh.

* Total investment: ₹2,40,000
* Estimated returns: ₹4,78,000
* Total corpus after 20 years: ₹7,18,000

In other words, while you contributed ₹2.40 lakh from your own pocket, the power of compounding could add approximately ₹4.78 lakh to your investment.

What if you earn a 12% return?
If the average annual return is 12%, your corpus could grow to approximately ₹9.11 lakh after 20 years. * Total investment: ₹2,40,000
* Estimated returns: ₹6,71,000
* Total fund after 20 years: ₹9,11,000

It is worth noting that if the return is 12% instead of 10%, the final fund could be approximately ₹1.93 lakh higher. This demonstrates that, over the long term, even a small difference in the rate of return can lead to a significant difference in the final corpus.

A fund of over ₹13 lakh with a 15% return
If an average annual return of 15% is achieved on the investment, the fund could grow to approximately ₹13.12 lakh after 20 years.

* Total investment: ₹2,40,000
* Estimated returns: ₹10,72,000
* Total fund after 20 years: ₹13,12,000

In this scenario, a large portion of the total fund would be generated from the returns on the investment. However, a 15% return should not be taken for granted; achieving it may involve taking on market risks.

Points to consider when starting an SIP
The key advantages of investing through an SIP are the benefits of regular investment and a long-term horizon. You can start with a small amount and increase your investment as your income grows.

Disclaimer: This content has been sourced and edited from Dainik Jagran. While we have made modifications for clarity and presentation, the original content belongs to its respective authors and website. We do not claim ownership of the content.