SIP Investment Plan: Due to the fluctuations in the market and low returns in other means of investment, SIP is becoming increasingly popular among the people these days.
SIP Investment Plan: Systematic Investment Plan (SIP) in mutual funds is on everyone’s lips these days. People’s inclination towards creating a fund of lakhs by starting with small amounts is increasing rapidly. If you do a SIP of just Rs 1000 every month, then it can reach Rs 31 lakh after some time. Let us understand through calculation how this is possible, how much time it will take.
What is SIP and how does it work?
SIP i.e. Systematic Investment Plan is an easy way to invest in mutual funds. In this, you put a fixed amount every month, like Rs 1000 in a mutual fund scheme. This money is invested in the stock market or debt market, and over time your money grows with the power of compounding. The good thing is that you do not have to invest a large amount at once. A large fund can be created even with small amounts.
If you invest for a long time and choose the right fund, then you can get great returns through SIP. For example, schemes like Quant Infrastructure Fund have given excellent returns in the last 17 years. But time and discipline are very important in calculating returns.
How will Rs 31 lakh be created from a SIP of Rs 1000?
Now let’s come to the calculation, which will tell how a fund of Rs 31 lakh will be created from a monthly SIP of Rs 1000. Suppose you invest in a good equity mutual fund, which gives an average return of 12% per annum. This return is considered common for long term in equity funds.
The formula of compounding works in the calculation of SIP. If you invest Rs 1000 every month, and get 12% annual return, then we have to see in how many years your money will reach Rs 31 lakh.
The formula for calculating SIP is:
FV = P × (((1 + r)^n – 1) / r) × (1 + r)
Here:
FV = Future Value
P = Monthly investment (Rs 1000)
r = Monthly return rate (12% per annum ÷ 12 = 1% per annum, i.e. 0.01)
n = Total number of months
Now, we have to find the time (n) to create a fund of Rs 31 lakh. 12% annual return is considered to be the standard for equity funds. If we invest Rs 1000 every month for 30 years, then:
Total investment = Rs 1000 × 12 months × 30 years = Rs 3,60,000
Return rate = 12% per annum
Time = 30 years (360 months)
When calculated through SIP calculator, with a monthly SIP of Rs 1000 in 30 years with a return of 12% per annum, your fund can grow to around Rs 30,80,973. This is around 31 lakhs. That is, in 30 years your investment can grow from Rs 3.6 lakh to around Rs 31 lakh. Out of this, Rs 3.6 lakh will be your investment, and the remaining Rs 27.24 lakh is the profit earned from compounding.
The magic of time and the power of compounding
The specialty of SIP is compounding, that is, interest on interest. The longer you invest, the faster your money grows. For example, if you invest for 25 years instead of 30 years, then with a 12% return, your fund will reach around Rs 18 lakh. But adding 5 more years, it becomes close to 31 lakh. This is the power of compounding.
Why is it important to choose the right fund?
Not all mutual funds give the same returns. Equity funds, especially midcap or small cap funds, can give returns of up to 12-15% in the long term. But these also have high risk. If you want less risk, you can choose large cap funds or hybrid funds, which can give 10-12% returns.
So, before investing, definitely check the past record of the fund, the credibility of the fund manager, and your risk tolerance.
How much time and how much risk?
30 years may seem like a long time to create a fund of 31 lakh, but the advantage of SIP is that you can start with a small amount. If you choose a fund with 15% return, as offered by some midcap funds, then a fund of Rs 31 lakh can be created even in 25 years. But with higher returns, the risk also increases. Equity funds have market risks, while options like PPF are safe, but their return is around 7.1%.
When is the right time to start?
The biggest feature of SIP is that you do not have to wait for the right time in the market. Whether the market is up or down, regular investment can benefit you in the long run. In April 2025, the SIP inflow was Rs 26,632 crore, which is more than March (Rs 25,926 crore) and February (Rs 25,999 crore).
