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Does an SIP of Rs 500 Really Help?

What can you do with Rs 500 today? Get an amazing lunch or dinner for two at a decent restaurant in town? Or get a Pizza for two? Or get a cool T-shirt from an online store?

Alternatively, with Rs 500, you could have a large pot of money to send your child to their dream college and fulfil their aspirations. One can choose the route of saving Rs 500/ month through SIP plans with mutual funds and have a considerable sum of money by the end.

What is an SIP?

A Systematic Investment Plan or SIP is a way in which you can choose to invest a fixed amount with the mutual fund at regular intervals (say a month or a quarter).

SIPs aid in creating a financial discipline and saving towards a goal. They reduce the burden on the investor by allowing them to invest small sums instead of a large cash outflow or lumpsum amount at once, and provide the investor with decent returns.

To forgo lifestyle expenditure and to start investing would be difficult for early boomers in the starting stages of their careers. Once the investor opts for an SIP (or more SIPs), the amount as specified by the investor automatically gets debited from the bank account that is linked to the SIP.

Hence, you are investing for your future automatically without you making any separate effort towards it.

Can I save Rs 500 and have something tangible in the end?

SIPs in India allow for investing with a minimum amount of Rs 500. Hence, as an investor, instead of ogling at the stock/trading screens and making desperate attempts to time the market and fanatically buying and selling stocks, you could simply invest in Mutual funds.

Mutual funds take care of diversification (putting your eggs into different baskets), and invest in the best stocks and finally earn you a decent return.

Let us consider some scenarios –

Case 1

As a very young investor, a graduate who has earned his or her first pay-check, you could start saving Rs 500 into an SIP. Even if you maintain this as your amount and invest for 35 years, by the time that you are 56, you will have Rs 1.76 Cr in your investment pot.

Hence with an investment of Rs 2.1 lakhs, you would be creating a wealth of Rs 1.7 Cr.

SIP
Amount500
Expected Return18%
Number of years35
At the end of the time period
Invested Amount2,10,000
Wealth Created1,70,79,403
Final Amount1,72,89,403

Case 2

Even if you do not have 35 years till your child starts to go to college, you can still create a large amount of wealth by having this discipline for 20 or 25 years. The results are as follows.

SIP
Amount500
Expected Return18%
Number of years20
At the end of the time period
Invested Amount            1,20,000 
Wealth Created          10,34,427 
Final Amount          11,54,427 

SIP
Amount500
Expected Return18%
Number of years25
At the end of the time period
Invested Amount            1,50,000 
Wealth Created          27,18,627 
Final Amount          28,68,627 

In both cases, the wealth created is 9x or 18x times the amount invested by you.

As one can see in the above charts that a small difference of 5 years creates a great compounding effect where Rs 500 amounts to Rs 28.6 lakhs when invested for 25 years and amounts to less than half the amount of Rs 11.54 lakhs when invested for 20 years. Hence, by being an early saver, one can create a tremendous amount of wealth with minimal effort.

You can start your investment journey today with an SIP in the top mutual funds in the country with EduFund. Just download the EduFund app and sign up to get started!

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