How 2 years delay in SIP can cost you dearly
3min 40 seconds read
Stock market investing can be intimidating, especially if you are a beginner. However, there's a tried and tested investment strategy that not only makes investing in the stock market simple and easy but can also help you build long-term wealth: SIPs or Systematic Investment Plans.
Systematic Investment Plans (SIPs) allow you to invest a small sum in mutual funds at regular intervals. By contributing a small amount of money on a regular basis, SIPs can help you harness the power of compounding to achieve your financial goals.
A small amount of money invested in mutual fund schemes each month has the potential to grow into a significant investment portfolio over time. SIPs are an excellent investment option for those who are looking for a hassle-free and disciplined approach to investing. If you have any uncertainties regarding the suitability of the product/scheme, it is advisable to seek guidance from a mutual fund expert.
Often, people are thrown off from investing in SIPs or mutual funds because they think it is too complex. They have difficulty understanding the mechanism of how it works, so they put off their investments.
However, the cost of delaying your investment can be huge! Even if you invest just Rs 1,000 a month in a SIP, a delay of two years can cost you dearly!
Don’t believe it? Let’s look at the numbers!
Let’s assume at 25, you want to invest Rs 1,000 in an equity SIP that earns you a return of 12% p.a. with a plan to stay invested for 30 years. Owing to some reason, you decide to start with the plan after two years. Your investment horizon then becomes 28 years. The table below demonstrates the potential returns you may encounter. Nevertheless, it is crucial to acknowledge that these returns are subject to risks:
| Details | Start at 25 | Start at 27 |
|---|---|---|
| Investment horizon | 30 | 28 |
| Amount invested per month | Rs 1,000 | Rs 1,000 |
| Assumed Return on Investment | 12% | 12% |
| Invested amount | Rs 3,60,000 | Rs 3,36,000 |
| Total corpus accumulated with returns | Rs 35,29,914 | Rs 27,58,585 |
| Cost of delayed investment | - | Rs 7,71,329 |
* The above calculations are for illustration purposes only and are subject to risks.
SIP in debt fund for that long a period is doubtful. Can consider maybe a hybrid fund
As you can see, a delay of just two years can cost you more than Rs 7 lakh! Now, even if you invested in a hybrid fund with an average return of 10% p.a., your cost of delayed investments would be in lakhs.
| Details | Start at 25 | Start at 27 |
|---|---|---|
| Investment horizon | 30 | 28 |
| Amount invested per month | Rs 1,000 | Rs 1,000 |
| Assumed Return on Investment | 10% | 10% |
| Invested amount | Rs 3,60,000 | Rs 3,36,000 |
| Total corpus accumulated with returns | Rs 22,79,325 | Rs 18,45,849 |
| Cost of delayed investment | - | Rs 4,33,476 |
* The above calculations are for illustration purposes only and are subject to risks.
The Power of Compounding
The power of compounding is a force in investments that allows you to earn interest on your principal investment as well as on the accumulated interest. This means that your earnings would have the potential to grow at an accelerating rate over time which may help you earn significant returns on your investment.
If you start early, the compounding effect will be much more powerful, helping you meet your financial goals with ease. As the examples above explain, just a two-year delay can have a huge cost of delayed investments.
This is why you should start investing as soon as you can. Even if you have just Rs 1,000 to invest a month, you should find a good mutual fund to invest in.
Investing in mutual funds is easy and hassle-free. You can automate your investments online without having to worry about making monthly investments.
Final Word
As you know, slow and steady wins the race. Even if you can make only a small investment, start today to become financially secure in the future.
Disclaimer
The information disseminated on AMFI website about various categories of mutual fund schemes is for informational purposes for creating awareness about mutual funds as a financial product category and not for sales promotion nor solicitation of business.
The content herein has been prepared by AMFI on the basis of publicly available information, internal sources and other third-party sources believed to be reliable. However, AMFI cannot guarantee the accuracy of such information, assure its completeness, or warrant such information will not be changed.
The content herein does not take into account individual investor’s objectives, risk appetite or financial needs or circumstances or the suitability of the mutual fund products described herein. Hence, investors are advised to consult their professional investment adviser/ consultant/ tax advisor for investment advice in this regard.
A mutual fund scheme is NOT a DEPOSIT product and is not an obligation of, or guaranteed, or insured by the mutual fund or its AMC. Due to the nature of the underlying investments, the returns or the potential returns of a mutual fund product cannot be guaranteed. Historical performance, when presented, is purely for reference purposes and is not a guarantee of future results.
Mutual Fund investments are subject to market risks, read all scheme related documents carefully.