Investment in mutual funds through a Systematic Investment Plan is now among the favourite methods of wealth creation over the long term. If one becomes diligent, however small an amount is invested every month, it can grow into a large corpus through the power of compounding. Many investors often get shocked that a mere ₹2000 monthly SIP could accumulate to around ₹40 lakhs over the years. Let us get down to the complete calculation for understanding this wealth creation.
How Does SIP Work?
A SIP allows you to invest a consistent amount of money in a mutual fund scheme at fixed intervals, usually monthly. SIP encourages you to keep investing irrespective of what the market is doing at any given point, thus gaining the benefit of rupee-cost averaging and compounding. These small sums build up over time and return gains depending on market performance and fund category.
The Power of Compound Interest
This is where the power of compound interest comes into view for any SIP-based investment program. The returns earned after the first year of investment are reinvested, and in no time, returns begin accruing further… The longer you stay invested, the more is your money compounded. This is why SIPs are useful when we speak about long-term goals such as retirement, children’s education, or wealth creation.
Full calculation of ₹2000 monthly SIP
If there is an investor investing ₹2000 each month into an equity mutual fund with a 12 percent average annual return, the funds shall grow to: In different time frames:
| Investment Period | Total Investment | Expected Value (12% CAGR) |
|---|---|---|
| 10 Years | ₹2.4 Lakh | ₹4.65 Lakh |
| 15 Years | ₹3.6 Lakh | ₹9.95 Lakh |
| 20 Years | ₹4.8 Lakh | ₹19.85 Lakh |
| 25 Years | ₹6.0 Lakh | ₹39.95 Lakh |
According to the table given above, a ₹2000 monthly SIP would ingress to almost ₹40 lakhs in 25 years, illustrating the importance of disciplined investing and keeping a long-term view.
If you wanted to start investing early, this would allow for a longer compounding period. Even if the SIP amount in a month is small, it’s the time in the market that matters, not timing the market! The earlier you start, the bigger will be the corpus at the end of your term.
Conclusion
A monthly SIP of ₹2000 may not actually sound like a huge amount today, but over time, it can help build wealth almost worth ₹40lakhs. The important thing to remember is to stay consistent through it all, constitute proper stop orders during market volatility, and select good quality mutual funds with a decent track record. When used with proper discipline and patience, mutual funds can certainly help you in attaining your financial goals.