- An Investor Education and Awareness Initiative by SBI Mutaul Fund.
Every great achievement begins with a small step. Before we learn to walk, we must stand and take that first step. Similarly, creating wealth requires starting small, investing consistently, and staying disciplined. While traditional investment options were once the norm, today’s financial landscape offers multiple choices. Among them prominently that stands out is Mutual Funds through Systematic Investment Plans (SIPs), a powerful and accessible way to build wealth.
The Power of Starting Small
In a world where financial stability and wealth creation are paramount, achieving long-term financial goals can feel intimidating, especially when starting with limited resources. However, the simplicity and effectiveness of SIPs make them an ideal choice.
For instance, investing Rs 5,000 per month in an equity mutual fund with an average annual return rate assumed to be 12.62% can grow to over Rs 15.88lakhs in 12 years and a whopping Rs1.73 crore in 30 years!
“Great oaks from little acorns grow.”
SIPs allow you to begin investing with as little as Rs.500 per month. This breaks the myth that wealth creation requires a hefty initial sum. By starting small, you eliminate the pressure of saving a large amount upfront, enabling consistent and disciplined investing.
A SIP functions like a recurring deposit, but with market-linked returns. Each month, your chosen amount is invested in a mutual fund of your choice, buying units based on the fund’s prevailing Net Asset Value (NAV). Over time, as markets fluctuate, the value of these units grows, helping you build a substantial corpus to meet your financial goals.
The Power of Compounding
The real magic of SIPs lies in the power of compounding, where your investments earn returns, and those returns generate further returns. The earlier you start and the longer you invest, the greater the compounding effect.
Consider this:Starting at age 25 with Rs 5,000 per month can help you accumulate significantly more wealth by age 55 than starting at age 35, even if you invest more each month.Starting early gives your investments the time they need to flourish as time is your greatest ally in the journey of wealth creation.
A delay in starting a SIP can make a significant difference as seen below in the table.
| Starting investment at age | 25 years | 35 years |
| Total Amount Invested via SIP | ₹ 21,00,000 | ₹ 15,00,000 |
| Final Value at retirement at age 60 | ₹ 3,16,74,696 | ₹ 93,01,374 |
| Growth in Value of Investment | ₹ 2,95,74,696 | ₹ 78,01,374 |
SIP advantage
SIPs offer several benefits that make them a preferred choice for modern investors:
- Automation and Discipline:
One of the most compelling advantages of SIPs is the automation facility. When you automate your investments, a fixed amount is debited from your bank account and invested in a mutual fund of your choice at regular intervals. By automating investments, youfoster a habit of saving and investing without missing payments, ensuring consistency regardless of market conditions. In essence, you pay yourself or for your dreams first and then the rest can be allocated towards your expenses.
- Rupee-Cost Averaging:
SIPs enable you to buy more units when markets are low and fewer units when markets are high. This averages out the cost of your investments over time, mitigating the impact of market volatility.
- Flexibility:
SIPs offer flexibility to choose investment amount, and tenure for your financial goals. You can modify, pause, or even top-up your SIP say annually to align with your income / growing lifestyle, helping you align your investments to your goals.
- Goal-Based Planning:
SIP is designed to help you meet various financial goals, whether it isa downpayment towards buying a house, funding your child’s aspirations, or planning for retirement. Each SIP can be aligned to a specific financial goal. This systematic approach ensures that you progress toward your aspirations with a goal in mind and plan towards it.
Why Start Now?
Many people delay investing, waiting to accumulate a large amount of money. Unfortunately, this often leads to missed opportunities. Remember, wealth creation is not about timing the market but spending time in the market. SIPs empower you to start small and let your investments grow steadily over time.SIPs provide a structured and efficient way to stay invested and achieve your goals without feeling overwhelmed.
Conclusion:
A Systematic Investment Plan is the ideal tool for building wealth with discipline and consistency. By starting small, leveraging the power of compounding, and automating your investments, you can work toward financial independence and achieve your life goals.
The journey of a thousand miles begins with a single step. Do not wait for any reason and start your SIP as soon as possible to watch your small beginnings transform into substantial wealth over time.
Mutual Fund investments are subject to market risks, read all scheme related documents carefully.
