The difference between a normal systematic investment plan (SIP) and a step-up SIP can be massive over long periods of time.
In fact, the higher the step-up in the initial years, bigger your final corpus will be in the years to come.
Let us take an example.
- Monthly SIP – 10,000.
- Expected Returns – 12%
- Duration – 25 years.
In a normal SIP, where the SIP amount remained at 10,000 per month for 25 years – the total invested amount would be 30 lakhs and the total value of your investment would be 1.9 crore.
In a 5% step up SIP, where the SIP amount of 10,000 in the first year, would be increased to 10,500 in the second year – the total invested amount would be 57 lakhs and the total value of your investment would be 2.73 crore.
In a 10% step up SIP, first year 10,000, second year 11,000, third year 12,100 and so on. The total amount invested over 25 years would be 1.18 crore and the value of your investment at the end of the period would be 4.27 crore.
In a 15% step up SIP, the total amount invested would be 2.55 crore and value at the end of 25 years would be a whopping 7.25 crore.
20% step up SIP, the value at the end of 25 years would be 13.23 crore.
25% step up SIP, the investment value would be 25 crore.
Many would argue here that increasing the SIP amount by 20-25% would be very difficult in the latter years and this is true.
After all, a 25% step up SIP would mean you invest 10,000 in the first year and 12,500 in the second year. This may not be difficult. However, in year 10, your monthly SIP would be 74,000 a month and year 11 would increase to 93,000.
By year 20, with 25% increase every year, you would be depositing 7 lakhs every month. Hard.
But there is a solution to this.
Increase SIP amount by 25% every year for the first 15 years and then completely stop the monthly investment. Sounds fair?
You would be wondering what your final corpus would be.
It would be 7.2 crore.
This is because the value of your investment in the first few years is much more important than what you invest in the later years.
Bottom Line: The more aggressive you are in your early years (preferably 20s), the bigger your corpus will be in your later years (40s, 50s and 60s).
Leave a Comment