An SIP of Rs 50,000 a month can help you accumulate Rs 5 crore: Here's the hack

Systematic Investment Plan (SIP) is a disciplined and strategic way to create wealth. It is a tool through mutual funds where you commit to investing a fixed amount of money every month towards a certain financial goal. 

Here’s how you set off on a journey to accumulate Rs 5 crore through an SIP of Rs 50,000 per month.

First, it is important to understand the power of compounding and the role it plays in wealth creation. The idea behind investing a certain amount monthly is to ensure buying of units throughout different market cycles, which averages the cost of investments, a concept known as rupee cost averaging. 

Thus, compounding helps your money grow exponentially over time.

As per the FundsIndia Research Report, by investing Rs 50,000 per month with a 10% annual increase in contribution, you can achieve your first Rs 80 lakh in 7 years at an assumed rate of 12%. Surprisingly, the second Rs 80 lakh takes only 3 years, and the third Rs 80 lakh is attained in just 2 years.

Within the first 10 years, your corpus accumulates to Rs 1.6 crore. By the 13th year, it reaches Rs 3.2 crore, provided you continue investing. Ultimately, by the 17th year, you accumulate Rs 5.6 crore.

This highlights the substantial impact of compounding and increasing contributions annually.

The path to achieving the Rs 5.6 crore goal in 17 years primarily hinges on three factors: disciplined investing, incremental contributions, and the power of compounding. Disciplined investing entails adhering to an SIP tailored to your financial goals. Meanwhile, the power of compounding involves reinvesting your investment returns, leading to exponential wealth growth. By augmenting your contribution, you expedite the investment process.

For instance, if you opt not to increase the contribution by 10%, the journey towards the goal lengthens. Specifically, the first Rs 80 lakh takes 8 years to accumulate, followed by 4 years for the next Rs 80 lakh, and another 3 years for the third Rs 80 lakh. Consequently, reaching Rs 5.6 crore would extend to 21 years.

Considering equities' potential for higher returns over the long term, investing via an SIP in large-cap funds can yield returns of approximately 12%. Additionally, your remaining working years play a pivotal role, as disposable income tends to be lower in the initial years. 

In order to make your money work for you, patience is the key. You have to stay invested for a long duration without getting affected by the short term market fluctuations. SIP serves as an excellent tool to achieve financial independence provided it is executed wisely and consistently. Remember, the journey to Rs 5 crore is a marathon, not a sprint, and it all starts with a single step, or in this case, a single SIP!