Introduction

When it comes to personal finance and investing, Systematic Investment Plans (SIPs) have become a go-to option for many due to their flexibility and convenience. But can you start with a small amount like Rs. 500 and then continuously add to it over time? This article delves into the viability of starting with a small SIP amount and the strategies for increasing it as you grow financially.

The Two Methods for Increasing SIP Amounts

Step 1: The Step Up SIP or SIP Plus

One of the most common methods to increase your SIP amount is through a Step Up SIP. This feature allows you to boost your SIP monthly investment by a fixed amount each year. For instance, if you start with Rs. 500, it can be automatically increased by Rs. 1000 annually. This increase can continue until the SIP reaches a certain cap, such as Rs. 10,000, after which it stays constant.

Step 2: Creating Additional SIPs

The alternative method is creating additional SIPs whenever you can afford to add more money. While this approach offers flexibility, it can also be cumbersome due to having to track multiple SIPs. The step-up SIP method is generally more convenient and easier to manage.

Historical Performance and Returns

Nifty's CAGR

Over the past 20 years, starting in 1998, Nifty (SP BSE Sensex) has delivered a Compound Annual Growth Rate (CAGR) of 13.4%. For the last decade, from 2008, this figure has improved to 13.89%. This historical data shows that investing in large cap mutual funds can yield impressive returns, especially if you can stay invested for several years.

Large Cap Mutual Funds

Large cap mutual funds, known for stability and lower risk, often offer a CAGR of 15% or more. For example, investing Rs. 500 with a 15% CAGR over 30 years can grow to a substantial amount. The projected returns after 30 and 50 years are particularly impressive.

Beyond Rs. 500: A More Substantial Investment

The Argument for a Smaller Starting Amount

While starting with Rs. 500 sounds attractive, some argue that a higher starting amount is more effective. According to their perspective, Rs. 2000 or Rs. 25,000 annually (approximately Rs. 200 monthly) is a better initial investment. They suggest that the discipline of saving and investing is more important than the starting amount.

Creating a Long-Term Strategy

For those who favor a smaller starting amount, it's crucial to build a long-term strategy. Regularly increasing your SIP amount, whether through the step-up method or by creating additional SIPs, can compound your returns over time. Over 30 or 50 years, the power of compounding can significantly enhance your total investment value.

Conclusion

Starting with Rs. 500 and gradually increasing it over time can be an effective long-term strategy. However, the key lies in staying consistent and making regular investments. With a disciplined approach and a well-thought-out strategy, even small SIP amounts can grow into substantial sums. Happy investing!