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Consequences of investing less than capacity (SIP)

Investing in a Rs 5,000 SIP and a Rs 1,000 SIP shows a difference of Rs 78,618 in 10 years and Rs 5,97,335 in 25 years, which is a significant loss due to not using the full capacity of investing.

Investing consistently through a Systematic Investment Plan (SIP) is a popular method for building wealth over the long term. However, there may be instances where you might fall short of investing your planned SIP amount or take it back step while investing through the route of SIP. Let’s explore the consequences of investing less than your target SIP contribution to your SIP.

The 50-30-20 rule is a budgeting strategy, not specifically for investing, but for allocating your after-tax income towards various financial goals. Here’s how it breaks down:

50% for Needs: This covers the essential expenses that you must pay to survive and maintain your current lifestyle. This includes housing, food, transportation, utilities, minimum debt payments, and other obligations.

30% for Wants: This portion is allocated for discretionary spending on things you enjoy but aren’t essential. This could be dining out, entertainment, hobbies, vacations, or subscriptions.

20% for Savings & Debt Repayment: This category is for your financial goals. It includes things like retirement savings, building an emergency fund, and paying off high-interest debt.

The beauty of the 50-30-20 rule is its simplicity. It provides a clear framework for allocating your income and promotes balance between necessities, enjoying life, and building a secure future.

Let’s imagine you have savings of a minimum of Rs 5,000 every month but you are hesitant to invest through SIP and end up investing only Rs 1,000. Then you are losing a great level of future benefit explained in the below tables:

Time Rs 5,000 SIP Rs 1,000 SIP Difference
5 Years Rs 35,575.95  Rs 7,115.19  Rs 28,460.76 
10 Years Rs 98,272.92  Rs 19,654.58  Rs 78,618.33 
15 Years Rs 2,08,766.40  Rs 41,753.28  Rs 1,67,013.12 
20 Years Rs 4,03,493.68  Rs 80,698.74  Rs 3,22,794.94 
25 Years Rs 7,46,669.67  Rs 1,49,333.93  Rs 5,97,335.74 

For the investment returns, we have assumed a CAGR of 12%

The above tables show the difference of Rs 78,618 in 10 years and Rs 5,97,335 in 25 years which is a massive in number. It clearly shows that you are losing a large chunk of your future corpus by not investing as per your capacity. The following table shows another example using different investment capacities.

Let’s imagine you have savings of a minimum of Rs 10,000 every month but you are hesitant to invest through SIP and end up investing only Rs 5,000. Then you are losing a great level of future benefit explained in the below tables:

Time Rs 10,000 SIP Rs 7,000 SIP Difference
5 Years Rs 71,151.89  Rs 49,806.32  Rs 21,345.57 
10 Years Rs 1,96,545.83  Rs 1,37,582.08  Rs 58,963.75 
15 Years Rs 4,17,532.80  Rs 2,92,272.96  Rs 1,25,259.84 
20 Years Rs 8,06,987.36  Rs 5,64,891.15  Rs 2,42,096.21 
25 Years Rs 14,93,339.34  Rs 10,45,337.54  Rs 4,48,001.80 

For the investment returns, we have assumed a CAGR of 12%

The above tables show the difference of Rs 58,963in 10 years and Rs 4,48,001 in 25 years which is a massive in number. It clearly shows that you are losing a large chunk of your future corpus by not investing as per your capacity.

In conclusion, the impact of investing below your target SIP contribution can have profound implications on your future financial well-being. By adhering to a disciplined investment strategy, such as SIP, and maximizing your investment capacity, you can significantly enhance your wealth accumulation over time. The comparison tables illustrate how even modest differences in monthly contributions can lead to substantial disparities in long-term returns. Therefore, it is crucial to prioritize consistent and adequate investments aligned with your financial goals to harness the power of compounding and secure a prosperous future.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. The information is based on various secondary sources on the internet and is subject to change. Please consult with a financial expert before making investment decisions.
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