Your annual investments play a big role in increasing your long-term wealth. One of the best ways to do that is by utilising the Rs 1.5 lakh annual limit available under Section 80C.
Many people only think of saving on income tax, but with the power of compounding, combined with consistent investing, this amount can grow to over Rs 30 lakh in 15 years.
SIPs And The Power Of Compounding
Compounding is the simple idea that your money earns returns, and those returns continue to earn more over time. This snowball effect becomes especially powerful when you invest regularly. In a SIP, every monthly contribution is reinvested, allowing your investment to grow steadily and accelerate as the years pass.
When you divide the annual Rs 1.5 lakh Section 80C limit into monthly SIPs, it works out to Rs 12,500 per month. As per SIP calculators, this consistent monthly investing, along with compounding, can multiply your savings manifold in a period of 15 years. The Rs 1.5 lakh invested each year can comfortably grow into Rs 30 lakh or even more.
The final amount would depend upon the rate of return. For example, Rs 12,500 per month for 15 years grows to nearly Rs 59.50 lakh at 12% returns, Rs 50.20 lakh at 10% and Rs 42.47 lakh at 8%. These numbers, which can be easily verified using any SIP calculator, demonstrate that even with moderate equity returns, you cross the Rs 30-lakh mark well before 15 years.
PPF Also Delivers Strong Long-Term Corpus
Conservative options like Public Provident Fund promise relatively low but assured returns. Currently, the interest rate is 7.1% per annum. If you invest Rs 1.5 lakh per year in PPF, the final amount will be lesser than what equities can deliver, but it would still be a sizeable corpus.
At the current rate of 7.1%, a yearly contribution of Rs 1.5 lakh can build a corpus of around Rs 40.68 lakh in 15 years. This comfortably surpasses the Rs 30-lakh mark and comes with the added advantages of capital protection and EEE tax benefits. Contributions qualify for deductions under Section 80C, while both the interest earned and the maturity amount remain completely tax-free.
Investing Rs 1.5 lakh every year requires discipline. Skipping it means you not only forgo tax savings, you are also denied long-term returns that compounding can produce. The easiest way to make this annual investment is by automating a SIP in mutual funds or simply depositing the money regularly into a PPF. Do it for 15 years and you can have a corpus of over Rs 30 lakh.
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