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“🚨 SIP Alert: Inflation’s Stealth Attack on Your Wealth!”

Inflation Unmasked: The Shocking Truth About SIP Returns

Author

Busy Nac
July 18, 2024

Title: The Reality of SIP: Unmasking the Inflation Myth

Dear Growth Insights subscribers,

Welcome to another edition of our newsletter! Today, we delve into the fascinating world of Systematic Investment Plans (SIPs) and uncover a crucial truth that often goes unnoticed: the impact of inflation on your investment returns.

Why SIPs Are Great

What Is an SIP?

A Systematic Investment Plan (SIP) is a disciplined approach to investing. It allows you to invest a fixed amount at regular intervals (monthly, quarterly, or annually) in mutual funds. SIPs are particularly popular among retail investors because they instill financial discipline and help accumulate wealth over the long term.

The Benefits of SIPs

  1. Rupee Cost Averaging: When you invest via SIP, you buy units of a mutual fund at different market prices. Some months, the price will be high; other months, it will be low. Over the long term, this averages out, ensuring that you don’t pay an overvalued price for your investment.

  2. Flexibility: Contrary to the myth, SIPs are not just for small investors. High net worth individuals (HNIs) and wealthy investors also use SIPs to invest in the markets. All it takes is completing the KYC process, and anyone can benefit from SIPs

The Inflation Reality Check

How Inflation Affects SIP Returns

Inflation erodes the purchasing power of money over time. When calculating SIP returns, it’s essential to account for inflation. Here’s how you can do it:

  1. Inflation-Adjusted Return Formula:

    • Calculate the real return after adjusting for inflation:

      Inflation-adjusted return=1+Inflation1+Return​−1

Example Scenario

Let’s say you plan to start a monthly SIP of ₹1,000 in a mutual fund scheme with an expected annual return of 15%. The average rate of inflation during your investment tenure is 3.5%. Using the formula:

Inflation-adjusted return=1+0.0351+0.15​−1≈11.11%

This means the influencers who tell you that you will earn in crores using sip are not entirely true still you can earn in lakhs after adjusting inflation. So don’t stop SIP but do keep reality in mind !!!

Conclusion

SIPs remain an excellent investment avenue, but understanding the role of inflation is crucial. As you embark on your investment journey, remember that SIPs are not immune to inflation’s effects. Stay informed, invest wisely, and let your wealth grow steadily.

Happy investing!

Best regards,

Your Growth Insights Team