SIP Trick: How to make more money even with less annual returns

SIP Trick: How to make more money even with less annual returns

Photos: Pexels/Pixabay

Photos: Pexels/Pixabay

While annual mutual fund returns ultimately decide the fate of your final corpus, there is a trick or a strategy that can help you get a bigger corpus even when the return is less. Let’s explore.

While annual mutual fund returns ultimately decide the fate of your final corpus, there is a trick or a strategy that can help you get a bigger corpus even when the return is less. Let’s explore.

This trick is known as ‘Step Up SIP’ where investors increase their SIP amount by a fixed percentage every year.

This trick is known as ‘Step Up SIP’ where investors increase their SIP amount by a fixed percentage every year. 

Point 1: If annual returns are high, naturally your final corpus will be higher. However, there is no guarantee of higher returns from mutual fund investments.

Point 1: If annual returns are high, naturally your final corpus will be higher. However, there is no guarantee of higher returns from mutual fund investments. 

Why this trick works?

Why this trick works?

Point 2: When you increase the amount of SIP every year, it will compensate for any fall in returns, and may even give you a higher corpus. Let’s see an example…

Point 2: When you increase the amount of SIP every year, it will compensate for any fall in returns, and may even give you a higher corpus. Let’s see an example…

Example: Suppose you want to do SIP of Rs 10,000/month for 20 years and expecting an annual return of 12%. In this case, your final corpus will be approx. Rs 99.9 lakh.

Example: Suppose you want to do SIP of Rs 10,000/month for 20 years and expecting an annual return of 12%. In this case, your final corpus will be approx. Rs 99.9 lakh. 

However, if you increase the SIP amount by 10% every year, the corpus at 12% returns will be approx. Rs 1.87 crore after 20 years.

However, if you increase the SIP amount by 10% every year, the corpus at 12% returns will be approx. Rs 1.87 crore after 20 years. 

Even at 10% annual returns, the 10% step-up SIP will give you a corpus of approx. Rs 1.5 crore. While 8% annual return will give approx. Rs 1.27 crore!

Even at 10% annual returns, the 10% step-up SIP will give you a corpus of approx. Rs 1.5 crore. While 8% annual return will give approx. Rs 1.27 crore!

Radhika Gupta, MD & CEO of Edelweiss Mutual Fund says not increasing SIP amount even when the income increases is one of the mistakes investors often make.

Radhika Gupta, MD & CEO of Edelweiss Mutual Fund says not increasing SIP amount even when the income increases is one of the mistakes investors often make.

What Experts Say

What Experts Say

Deepak Shenoy, Founder CEO of Capital Mind says, increasing the SIP by 10% has a greater impact on the overall corpus than a higher interest rate.

Deepak Shenoy, Founder CEO of Capital Mind says, increasing the SIP by 10% has a greater impact on the overall corpus than a higher interest rate. 

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

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