The beauty of SIP (Systematic Investment Plan) is that you can start with a small amount like Rs 100, Rs 250 or Rs 500 and gradually increase it. After capital market regulator SEBI gave its go-ahead to fund houses for low-value SIPs, many asset management companies (AMCs) have now allowed minimum investments starting from as low as Rs 100.

But despite the fund houses lowering the limit for minimum SIP investment, the average ticket size for SIP investments remained above Rs 2,000 in the country.

Start SIP with a small amount and increase it gradually

Not everyone can invest a large amount at once, but the biggest strength of SIP is that you can start small and increase the investment gradually, which is called the step-up approach.

You can start with a SIP of Rs 100 or even Rs 500 and as your income increases, you can also increase the investment amount.

For example, let’s say you start your SIP with Rs 500 and do a step-up of 10% every year, you will be surprised to know that by the end of 9th year the SIP amount will be more than Rs 1,000 per month.

Also read: SIP portfolio down by 20-30 pc in current market crash? Here’s how to recover

In this write-up, we will understand through calculations that how much time it takes to create a fund of Rs 1 crore if you invest per month Rs 2,000, Rs 5,000 and Rs 10,000 in step-up SIPs while assuming a 15% annualised return.

SIP of Rs 2,000 (with 10% increase every year)

If you start an SIP of Rs 2,000 and increase it by 10% every year, then assuming an average return of 15% per annum, your fund can reach Rs 1.14 crore in 25 years.

Total investment: Rs 23.60 lakh

Interest income: Rs 90.83 lakh

Total corpus: Rs 1.14 crore

So, Rs 2,000 SIP with 10% step-up can help you reach your Rs 1 crore corpus goal in 25 years.

Rs 5,000 SIP (with 10% increase every year)

If you do an SIP of Rs 5,000 and increase it by 10% every year, your fund can become Rs 1.05 crore in 19 years at an annualised return of 15%.

Total investment: Rs 30.69 lakh

Interest income: Rs 74.44 lakh

Total corpus: Rs 1.05 crore

With Rs 5,000 SIP and 10% step up every year, you can build a corpus of over Rs 1 core in 19 years.

Rs 10,000 SIP (with 10% increase every year)

If you start an SIP of Rs 10,000 and increase it by 10% every year, your fund with an annualised growth of 15% can become Rs 1.02 crore in 15 years.

Total investment: Rs 38.12 lakh

Interest earnings: Rs 64.46 lakh

Total corpus: Rs 1.02 crore

So, if your SIP investment is Rs 10,000 and you increase this investment amount by 10% every year, you can reach your Rs 1 crore wealth goal in just 15 years.

Also, we will now understand how to handle SIP during market downturns and why SIP is better than traditional investment plans.

How to handle SIP during market crash?

-Many investors panic when the market crashes and stop SIP. But this is the time to continue SIP.

-When the market crashes, you get more units at a lower price.

-In the long term, the market always goes up, so take advantage of the crash.

-The best decision is not to stop SIP, but to continue your investment.

Market crashes can work in your favor, provided you are patient and continue investing.

Also read: Mutual Funds: THESE 5 SIP mistakes can cost you dearly

SIP vs Traditional Investment Plans

Fixed Deposit (FD) – While FDs offer a return of 6-7%, mutual funds can offer an average return of 12-15%.

PPF (Public Provident Fund) – It is safe in the long term but does not offer more than 7-8% return.

Mutual Fund SIP – The best way to beat inflation in the long term and is capable of giving you high returns.

This is why if you want to build wealth in the long term, mutual fund SIP is the best option.

Disclaimer: The above content is for informational purposes only. Mutual Fund investments are subject to market risks. Please consult your financial advisor before investing.