It is also important to have a balanced portfolio that matches your risk tolerance and financial goals. High-risk investments may offer the potential for higher returns, but they also come with higher risks. It is important to consider your personal circumstances and invest accordingly.
In addition, seeking the advice of a financial advisor can be beneficial in creating a solid investment plan and sticking to it. A professional can help you determine your risk tolerance, create a diversified portfolio, and provide guidance during market downturns.
Overall, creating long-term wealth through investing requires patience, discipline, and a long-term mindset. Starting small and increasing your investments over time can greatly impact the final outcome. Remember to stay disciplined, stick to your plan, and seek the advice of a professional when necessary.
For example, if you are close to retirement age, you may want to take a more conservative approach to invest, with a greater focus on preserving capital rather than generating high returns. On the other hand, if you are young and have a long time horizon, you may be able to take on more risk in pursuit of higher returns.
It's also important to regularly review and adjust your investment strategy as your financial situation changes. For example, if you receive a raise or a windfall, you may want to increase your investment contributions. Conversely, if you experience a financial setback, you may need to scale back your contributions temporarily.
Let's start with a monthly investment of Rs 25,000 and assume three return rates of 8 percent, 10 percent, and 12 percent annually. For a cautious investor, there is a high possibility that investment decisions will be carefully considered and returns will not exceed 8%.
The opposite end of the scale, which predicts a return of 12 percent annually on average, also presupposes that you have the capacity to withstand market volatility and can accept greater equity risk.
With a step-up SIP, where you raise the amount invested by 10% annually, the same return scenarios are also carried out. As a result, you start off with a monthly SIP of Rs 25,000 in year one, which increases to Rs 27,500 in year two, and so on throughout the SIP's term.
The first fundamental discovery is that starting off doesn't require a lot of money; although it would be helpful. You need time to work in your favor if you are just getting started. Your financial objective will be attained faster the more money you are prepared to put aside each month.
Second, by just increasing your SIP, you may cut the time it takes to reach your wealth goal—in this example, Rs 10 crore—by six to thirteen years. The time spent might be further shortened if the step-up proportion is bigger. For instance, if you increase your SIP by 20% annually, you will need 19 years rather than 25 to reach your return target at a return rate of 12%.
| Regular SIP | Number of years | Amount invested (Rs Crore) | What you get (Rs Crore) |
|---|---|---|---|
| Rs 25,000 Monthly SIP @ 8% annual return | 42 | 1.2 | 10.4 |
| Rs 25,000 Monthly SIP @ 10% annual return | 36 | 1.08 | 10.6 |
| Rs 25,000 Monthly SIP @ 12% annual return | 31 | 0.93 | 9.97 |
| STEP UP SIP* | |||
| Monthly 10% Step up SIP @ 8% annual return | 29 | 4.45 | 10.6 |
| Monthly 10% Step up SIP @ 10% annual return | 27 | 3.63 | 10.8 |
| Monthly 10% Step up SIP @ 12% annual return | 25 | 2.95 | 10.7 |
| *For step-up SIP, starting value is Rs 25,000 for year 1 Source: Scripbox SIP Calculator | |||
In conclusion, building wealth through investing is a long-term process that requires discipline, patience, and a solid understanding of your individual financial situation. With a consistent investment strategy, tailored to your goals and risk tolerance, you can achieve substantial wealth over time, regardless of the size of your initial investment.
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