Systematic Investment Plans, best known as SIPs are one of the best medium through which we can invest money. Get a full overview of Mutual Funds, SIP
Investing in SIP: If you are also planning to invest in mutual funds the Systematic Investment Plans (SIPs) are the best options available in the stock market. Investors who want to contribute a small amount regularly then investing in SIP through a mutual fund is beneficial.
Now, many of you are totally confused whether to invest in a long term SIP with a smaller amount or a short term SIP with a larger amount.
| Post Name | ₹1,000 Monthly SIP for 20 Years Vs. ₹10,000 Monthly SIP for 5 Years |
| Category | Mutual Funds |
| Finance | Click Here |
| Our Website | www.themoneycodex.com |
In this article, we are going to know which SIP is going to give you great results. Read this article thoroughly to get a complete overview of comparison of Systematic Investment Plans (SIPs)
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| ₹1000 Monthly SIP for 20 Years Vs. ₹10000 Monthly SIP for 5 Years |
You will get a complete comparison of ₹1000 SIP for the duration of 20 years with a ₹10000 SIP for 5 years based on risks, returns, and financial discipline.
Understand SIP and Power of Compounding
Systematic Investment Plans (SIPs) allow you to invest a fixed amount in the mutual funds at a regular intervals. The advantage of SIP is rupee cost averaging and the power of Compounding. In this process, the returns generate from returns over time.
"Compound interest is the eighth wonder of the world. He who understands it earns it; he who doesn’t pays it." - Albert Einstein
Always remember, if you want to gain the maximum returns then duration plays a crucial role in SIP. The longer your money is invested in the mutual fund, the greater the compounding effect on your investment.
SIP Comparison
For clarity, Let us do comparison between two SIP investment strategies:
- SIP 1: ₹1,000 SIP per month for 20 years
- SIP 2: ₹10,000 SIP per month for 5 years
Assumptions:
- Expected yearly return of interest: 12%
- Investment Intervals: Monthly SIP
Now, let’s calculate the wealth accumulated in both SIP cases.
|
SIP Amount |
Duration |
Total Investment |
Expected Returns (12%) |
Maturity Amount |
|
₹1,000 |
20 years |
₹2,40,000 |
₹9,99,500 |
₹12,39,500 |
|
₹10,000 |
5 years |
₹6,00,000 |
₹1,58,000 |
₹7,58,000 |
Key Observations:
- Longer duration (20 years) results in outstanding higher returns due to the power of compounding.
- Mutual Fund Lump sum investment is higher in the 5-year SIP, but its returns are lower.
- The power of compounding favors long-term systematic investment plans (SIPs)
Benefits of ₹1,000 SIP for the Duration of 20 Years
- Higher Wealth Generation
- Due to longer duration of investment, compounding works in favor of the investor.
- SIP of ₹1,000 over 20 years generates a total of ₹12.39 lakh.
- Lower Burden of Finance
- Contribution of ₹1,000 monthly is more manageable than ₹10,000 per month.
- Excellent Risk Management
- Investing over 20 years allows averaging out market volatility.
- Discipline in Investing
- Long-term SIP motivates financial discipline and savings habits.
Benefits of ₹10,000 SIP for 5 Years
- Faster Liquidity
- Investors get returns very soon. This is futuristic if you have short-term goals.
- Higher Initial Investment
- People with higher disposable income can invest aggressively for quick returns.
- Better for Short-Term Goals
- Best suits for investors who are planning for short-term financial goals like buying a car or home down payment.
Risks and Considerations
|
Factor |
₹1,000 SIP for 20 Years |
₹10,000 SIP for 5 Years |
|
Investment Horizon |
Long-term (20 years) |
Short-term (5 years) |
|
Return on Investment |
Higher due to compounding |
Lower due to short duration |
|
Market Volatility |
Averaged out over time |
Can be affected by short-term fluctuations |
|
Financial Commitment |
Lower (₹1,000/month) |
Higher (₹10,000/month) |
|
Liquidity |
Delayed but higher returns |
Faster access to funds |
SIP: Key Considerations
- Time duration in the market is more crucial than timing of the market.
- Short-term SIPs are more vulnerable to market fluctuations.
- Long-term SIPs offer greater compounding benefits.
Real-Life Example
Suppose, there are two investors:
- Rahul initiates a ₹1,000 SIP at age 25 and continues till 45 that results in a total of ₹12.39 lakh.
- Amit starts a ₹10,000 SIP at age 40 and invests till 45. He accumulates a total of ₹7.58 lakh.
Even though Amit invested more money (₹6 lakh vs. ₹2.4 lakh), Rahul ended up with almost 65% higher returns due to a longer duration of compounding of investment.
Which SIP is Better?
For many investors, the ₹1,000 SIP for 20 years is the better option because of the following reasons:
- This SIP provides higher long-term returns.
- It spreads out investment risk over time.
- SIP of ₹1000 is affordable for most investors.
- This SIP benefits from the power of compounding.
However, if you have a higher income and short term goals the monthly SIP of ₹10000 for the duration of 5 years is preferable.
SIP Comparison: Key Takeaways
- Investing in mutual funds the power of compounding applies with long term investments.
- Investing in SIPs for the short-term provides faster liquidity but lower returns.
- A ₹1,000 SIP for 20 years accumulates more wealth than a ₹10,000 SIP for 5 years.
- Financial discipline is key to becoming successful while investing in the share market.
Mutual Funds & SIPs: Conclusion
If you are going to invest in the Systematic Investment Plans (SIPs) then the duration plays a very crucial role in wealth accumulation.
If anyone invests in a smaller SIP for a longer duration then it will outperform a larger SIP for a shorter duration. This is due the power of compounding that plays its role in this whole process.
If your purpose is long term wealth generation then ₹1000 SIP for the duration of 20 years is a much better choice. However, if you have short term financial goals then SIP of ₹10000; for the duration of 5 years can be useful
At the end, try to introspect and think which type of SIP is going to suit you best.
"Start early, invest consistently, and let compounding do the magic."
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