How SIP Can Make You Rich?

SIP is a way of investing your money in mutual funds. It helps you invest fixed amounts of money periodically in a mutual fund scheme of your choice. SIP allows you to put money in mutual funds in a disciplined manner over some time. 

You could consider investing as low as Rs 500 per instalment through the systematic investment plan. You may choose the daily, weekly or monthly SIP at your convenience. It helps if you stick with SIPs in mutual funds during both the bull and bear market phase. 

Why invest through SIP?

The benefit of rupee cost averaging

You benefit from rupee cost averaging, where you avoid timing the market if you invest in equity funds through the SIP. It is an approach where you put small amounts regularly in a mutual fund scheme. 

It helps you buy more mutual fund units when stock markets correct and lesser units when markets rise. You will average out the cost of your investment over a while. 

SIP encourages disciplined investment

SIP encourages you to invest before spending your money. It teaches discipline through the investment approach and helps you attain your long-term financial goals. 

You can choose SIP dates close to payday for your monthly SIP if you draw a fixed monthly salary. It ensures you have a sufficient balance in your bank account for SIP transactions to go through. Moreover, the AMC will cancel your SIP if you miss SIP instalments for three consecutive months.

SIP gives you the power of compounding benefit

You may consider investing in equity funds through the SIP at an early stage in your life. It helps you enjoy the power of compounding benefit as your investment has time to grow. You have compounding as the reinvestment of earnings to give you return on returns.

You must have a long investment horizon to maximise the return from equity funds through SIP over some time. You must invest in long-term financial goals such as retirement at an early stage in life to accumulate a bigger corpus. 

You must select an investment that can offer inflation-beating returns over some time. You could put money in equity funds through SIP for the long-term to maximise your return through the power of compounding. 

How can SIP make you rich?

You can invest in equity funds through SIP for the long term. It helps you invest small amounts regularly in mutual funds without timing the market. However, it would help if you stayed with SIPs across both the bear and bull market phases to create wealth. Let’s understand how SIP can make you rich with an example.

Suppose you invest Rs 10,000 per month through SIP in an equity fund. You put money for 15, 20, 25 and 30 years respectively. Let’s see how your investment grows at an expected average return of 12%. 

The table below shows the total corpus accumulated over 15, 20, 25 and 30 years. Use the ClearTax SIP Calculator to arrive at the relevant figures. 

SIP Amount (Rs)	Years	Invested Amount (Rs)	Average Returns (%)	Total Corpus (Rs)
10,000	15	18,00,000	12%	50,46,000
10,000	20	24,00,000	12%	99,91,000
10,000	25	30,00,000	12%	1,90,00,000
10,000	30	36,00,000	12%	3,53,00,000

If you invest just Rs 10,000 per month in an equity fund through SIP for 30 years, you can accumulate a corpus of Rs 3.53 crore. The power of compounding grows wealth and makes you rich. However, you will have to start investing early so that you can invest across your working life to build a massive corpus at retirement. Do note that we have assumed an average return of 12% from the equity fund. Actual returns vary depending on the markets and the fund.