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SIPs and The Butterfly Effect

Written by - Tejesh Kumar

July 8, 2020 4 minutes

SIPs & the Butterfly effect

“Don’t Count the Days; Make the Days Count.”

Muhammad Ali, The Soul of a Butterfly: Reflections on Life’s Journey

There is a method to the madness and this method also keeps changing and evolving in world finance. When we refer ‘to the butterfly effect’, we are generally related to this theory:

It has been said that something as small as the flutter of a butterfly’s wing can ultimately cause a typhoon halfway around the world.” ~ Chaos Theory

While there have been books and movies based on this theory that a very small action you take lead to something as big as a hurricane, in the form of science-fiction movies and autobiographies, it boils down to the fact that one small effort today can create something amazing tomorrow. SIPs are the best example of this theory, because you can start with a small investment and end up with something amazing over time.

Float like a butterfly but be patient with SIPs

An SIP (Systematic Investment Plan) is an ideal way of investing in mutual funds. It allows you to invest in regular intervals. It is also called the “planned way of investing.” It helps investors to cultivate a habit of saving and accomplish the goal of wealth creation. 

The current times are very testing considering that a lot of new investors get shaken by volatility and choose to step out of the markets instead of riding the tides till they reach their goals. Statistically, an investor can expect failure 100% of the times he invests without thinking it through. 

Asset allocation and financial planning are key to being profitable and building wealth. Let’s say you start exercising to get fit – you have a planned schedule, workout routine and diet plan. While planning, you knew it would take at least 8 months of perseverance before you achieve your target body. Now, what happens if you follow the regime regularly but don’t see much of an impact in one month? Would you stop? If you stop, you know who is to blame when eight months have passed, summer has begun, and you can’t get into your summer outfit on the beach.

It is extremely important that you plan well, keep reviewing and make situational alterations – not a revamp. This is how every effort that you make when maintaining an SIP will count, to make your efforts count at the end of the day to create a typhoon of wealth.

‘The Butterfly Effect’ of SIPs with Time

The best part about mutual funds is the fact of how the power compounding as against regular interest rate calculation is worth noting. However, time plays a very crucial role when it comes to mutual funds. Here is an example of how delaying your investments can also diffuse the butterfly effect.

If you started investing at the age of 25If you start investing at the age of 35
Extended internal rate of return(XIRR) @ 20.90%*Extended internal rate of return(XIRR) @ 13.60%*
Total investment: ₹30,000Total Investment: ₹18,000
Investment period – 25 years (until the age of 50)Investment period – 15 years (until the age of 50)
Future Value: ₹7,32,423*Future Value: ₹54,073*
You can miss out ₹6,78,350 just because you delayed your investments by 10 years. 

Disclaimer: *based on HDFC Equity Fund(G) data for last 10 years

By investing early, you expose your investments to a long-term investment strategy which can handle typhoons as well as the flutters of a butterfly.

The best part is that SIPs are extremely easy to maintain on our app and you can track your plan 24×7 with real-time tracking and much more by clicking here.

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