Investing a small amount every month can help you create a large corpus in the next 15 to 20 years to meet future expenses like higher education abroad or their marriages.
Let’s say you earn Rs 50,000 per month and you have a new born child. You will need some some money 16 years later when he/she is ready to go to college and then probably some more 20 to 25 years later for their wedding expenses.
If you invest just 5% of your income (Rs 2500) every month in SIPs, increasing it by 5% every year, with an annual return of 16% it can grow to:
- Rs 51 lakhs in 18 years, or
- Rs 1.75 crores in 25 years
Most folks have a couple of insurance policies in their children’s name and assume that it will be enough – Nothing can be farther from the truth and be prepared for a nasty shock a decade later if this is your plan. This is because insurance plans usually give returns in the range of ~6% per annum on an annualised basis which may grow to a significant lumpsum in absolute terms but not so in real terms.
Insurance companies also invest in the equity markets – the difference is that they keep a large chunk of the profits with themselves, all in the name of safety and security.
Don’t get fooled. Save smarter. Start a SIP.