Simply put, if a SIP or a Systematic Investment Plan investor starts investing at the age of 25 and continues till retirement, they will be able to invest for as long as 35 years. In this period, the investor will be able to avail compounding benefit
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For example, a lot of people, do invest in mutual funds in the monthly SIP (systematic investment plan) mode, but how many of them are self-disciplined in their investment method and increase their monthly SIP in sync with their annual income growth?
Speaking on the benefit of annual step-up in monthly SIP, SEBI registered tax and investment expert Jitendra Solanki said, "If a SIP investor starts investing at the age of 25 and continues investing till his retirement, then he will be able to invest for long 35 years. In this period the investor will be able to avail compounding benefit. Annual step-up helps the investor maximise one's compounding benefit and accumulate whopping retirement fund after starting with a small monthly investment."
On mutual fund SIP return, which one can expect in as long as 35 years of investment, Kartik Jhaveri, Director — Wealth Management at Transcend Consultants said, "On can expect to get around 12 to 16% return on one's SIP for such 35-year-long period." Jhaveri said that if someone starts investing in SIP, then its goal at the time of redemption should be more than ₹20 crore as one needs to beat the annual inflation during and post-investment period.
So, assuming ₹14,500 monthly SIP at the age of 25, if an investor continues investing till he turns 60, then at 12% annual return and with 10% annual step-up, the investor will be able to accumulate ₹22,93,56,845 or ₹22.93 crore.