If you want to become a millionaire, then SIP has the power to fulfill your wish. But there are two ways to invest in a SIP. One is regular SIP, and the other is Step-Up. Which SIP will make you a millionaire quickly? Understand it through calculation here.
If you want to become a millionaire in today's time, then there is nothing wrong in it. The way inflation is increasing rapidly, the value of rupee will be affected further in the coming time, in such a situation, after some time the value of 1 crore will not be very big. Therefore, not just 1 crore, but save so much money that there is no shortage even after 20 to 25 years from today.
The good thing is that now this is not a very difficult task. In the world of investment, Systematic Investment Plan (SIP) has the ability to turn this dream into reality. But do you know that there is a smart way in SIP too, which can take you to your goal even faster? We are talking about Step-up SIP. Often investors are in a dilemma whether they should do Normal SIP or Step-up SIP? Here know which method is more effective if you have to create a fund of 5 crores?
First of all, let's understand what is Normal SIP?
Normal or regular SIP is the most straightforward and popular way of investment. In this, you invest a fixed amount in your favorite mutual fund scheme on a fixed date every month. This amount remains the same from the beginning till the end of your investment. This is a great way of disciplined investment, but in this your investment does not get the benefit of your increasing income.
Now know, what is the magic of Step-up SIP?
Step-up SIP, as the name suggests, gives the option to increase your investment from time to time. It is also called top-up SIP. In this, you increase your SIP amount every year by a certain percentage or a fixed amount. Think about it, every year there is some increment in your salary. Why not add a small part of that increasing salary to your investment as well? Step-up SIP does exactly this. It increases your investment along with your increasing income, due to which the power of compounding (interest on interest) works even faster.
Target of 5 crores, who will reach it first?
Let us now come to the most important question. Let us assume that your target is to create a fund of ₹5 crores and you are planning to start a SIP of ₹20,000 every month. We also assume that your investment will get an average return of 12% annually. Now let us see how much time it will take to achieve this target through normal SIP and step-up SIP (with an annual increase of 10%).
Parameter Normal/Regular SIP Step-up SIPTarget Amount | ₹5 Crore | ₹5 Crore |
Initial Monthly SIP | ₹20,000 | ₹20,000 |
Annual Step-up | 0% | 10% |
Estimated Returns | 12% annually | 12% annually |
Time to Achieve Target | Approximately 29 years | Approximately 22 years |
(Note: This calculation is based on estimated returns. The calculation may vary depending on the actual return and market performance.)
Which is better?
It is clear from the above calculation that it will take you about 29 years to reach the target of Rs 5 crore through normal SIP. A total of Rs 5,47,89,406 will be deposited in 29 years. On the other hand, SIP with 10% annual step-up will complete this task in just 22 years. A fund of Rs 5,05,55,780 will be deposited in 22 years. This is the real power of step-up! In the beginning, there will be no difference between the two, but as the years pass, your invested amount in step-up SIP will increase and the effect of compounding on it will increase manifold.
Which SIP is right for you?
Step-up SIP
This is the best option for all those employed people whose income increases every year. This helps your investments keep pace with your growing income and help you reach your goals faster.
Normal SIP
This can be a good option for people who have a fixed income or who are very disciplined with their spending and cannot increase the investment amount. Having a regular SIP is always better than having nothing.
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