Everyone desires their hard-earned money to be invested wisely, securing their future. If you are also searching for better returns and safe investments, a Systematic Investment Plan (SIP) could be an excellent option. The 20x12x21 formula, in particular, is a method that allows you to build a fund worth crores through discipline, patience, and the right planning.
What is an SIP?
SIP, or Systematic Investment Plan, is an investment strategy where a fixed amount is invested in a mutual fund every month. This investment grows gradually and, through the power of compounding, can transform into a large sum over the long term. A key advantage of SIP is that it doesn't require a large lump-sum investment.
What is the 20x12x21 Formula?
This formula is based on three numbers—20, 12, and 21:
- Monthly investment of ₹20,000
- Expected annual average return of 12%
- Regular investment for 21 years
By following this strategy, you can build a fund of approximately ₹2 crore. According to SIP calculators, the total investment amount will be around ₹50.4 lakh, with the remaining amount generated through compounding.
How is SIP Calculated?
The maturity amount in an SIP is calculated using the compounding formula:
M = P × ({[1 + i]^n – 1} / i) × (1 + i)
Where:
- M = Maturity Amount
- P = Monthly Investment (₹20,000)
- i = Monthly interest rate (12% annually = 1% monthly)
- n = Total investment period (21 years × 12 months = 252 months)
According to this calculation, the total amount could be approximately ₹2.08 crore.
Step-up SIP: An Even Better Option
Increasing your SIP amount by 10% annually is called a step-up SIP. This accelerates fund growth. For instance, investing ₹20,000 in the first year, ₹22,000 in the second, and ₹24,200 in the third will yield significantly higher returns compared to a regular SIP.
Risks and Precautions
Since SIPs are linked to the stock market, risk remains inherent. However, over the long term, market fluctuations average out, making the investment potentially safer. Nevertheless, assess your financial situation and consult a financial advisor before investing.
Benefits of Starting Early
Time is the biggest factor in this formula. Starting investments at age 25 allows you to easily build a ₹2 crore fund by age 46. Starting later requires a higher investment amount or a longer time frame to achieve the same goal.
The 20x12x21 formula is an effective way to achieve financial freedom in the long term. With discipline and consistency in your SIPs, you can realize your dreams.
