Power Of Compounding In SIP
- 2m0•
- 02 Feb 2023
Systematic Investment Plan (SIP)
An SIP is the smartest way of investing money in mutual funds. Here, you invest a fixed sum of money over regular intervals. Each instalment gives you a specific number of units of the mutual fund. The number of units received vary depending on the price as per the net asset value of the fund.
When you invest regularly, you benefit from the power of compounding. Let’s see how it works.
Read more: How SIP Mutual Fund works?
Compounding— The Eight Wonder
Albert Einstein once said “Compound Interest is the eighth wonder of the world. He who understands it earns it. He who doesn’t pays it.”
Your money grows exponentially with the power of compounding. In simple interest, the interest is received only on the principal amount. But, in compound interest, you earn interest on the principal and on the interest amount earned as well.
To make the most of compounding, you need to start investing early in life.
Let’s look at an example -
Suppose you start investing Rs 500 per month from the age of 25 years at a 12% rate of interest for a period of 40 years, at the end of the tenure, you will have a sum of approximately Rs 59.4 lakhs.
On the other hand, if you would have started investing the same amount for the same rate of interest and tenure at the age of 35, you would have ended making a sum of only Rs 17.6 lakhs.
Now, you know about the 8th wonder- make the best use of it. Start investing today, no matter how small an amount; wait for the power of compounding to work, and it will build into a huge corpus in the future!
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