Still Not Investing? Check Out The Potential Impact of Delaying SIPs (With Examples)

Delaying SIP investment can reduce the time available for potential compounding, lower the total amount invested and affect the final corpus. The cost of delay in SIP may become more visible over longer periods, especially when the monthly SIP amount stays the same.

SIPs are designed to make regular investing easier, but many investors still keep postponing the start. Some wait for markets to fall, while others plan to begin only when their income rises.

The impact of delaying SIP isn’t limited to just missing a few instalments. Over time, a later start may affect how much you invest, how long your money stays invested and the corpus you may eventually build. 

If you’re wondering about the actual cost of delay in SIPs, read this practical guide to know more.

Delaying SIP investments can lead to the following:

1. Loss of Compounding Benefits

Compounding becomes more powerful when an investment gets a longer time to grow. With SIPs, each instalment has the potential to earn returns, and those returns can remain invested and contribute to future growth.

By delaying SIP investment, you lose some of that time.

• Fewer years for investments to potentially compound
• Less time for earlier SIP instalments to grow
• A potentially lower corpus over the longer term period

This is why the cost of delay in SIP can become significant over time.

2. Missed Rupee Cost Averaging Opportunities

SIPs allow you to invest a set amount of money at regular intervals. This means the same SIP amount of money buys more number of units when NAVs are low and lesser number of units when NAVs are higher.

Starting later means fewer investment dates across varied market conditions. This means:

• Fewer opportunities to buy units at lower NAVs
• Less participation across market cycles 
• Reduced benefit from spreading purchases over time

Rupee cost averaging does not guarantee profits or protect against losses, but regular investing can reduce dependence on trying to time the market.

3. Loss of Growth Potential

The growth potential of an SIP depends partly on how much you invest over time and how long that money remains invested. Earlier contributions also get more time to potentially compound.

For goals with a fixed timeline, such as a child’s higher education, delaying SIP investment means fewer contributions and less time for those investments to grow before the money is needed. This can reduce the potential corpus available for the goal.

4. Potential Delay in Realising Goals

If the final corpus is lower because of delaying SIP investment, it may take longer to reach a financial goal. This can affect goals such as retirement, buying a home or funding education, especially when the target amount and timeline are already fixed.

Lets understand the cost of delaying SIP investments with a few examples. Let’s say three investors had invested ₹5,000 per month in an equity mutual fund scheme until age 60 and all three earned 12% p.a. assumed returns. The only difference is when they started.

• Case I: Starts at age 28 and invests for 32 years

• Case II: Starts at age 33 and invests for 27 years

• Case III: Starts at age 38 and invests for 22 years

*Disclaimer: These figures are only illustrations and assume a 12% annual return. The assumption is a rounded illustrative equity return rate based on AMFI’s prescribed illustration rates for equity funds. Actual mutual fund returns are market-linked and may be higher, lower or negative. 

Past performance may or may not be sustained in future and is not a guarantee of any future returns

The example shows that delaying SIP investment leads to difference in both amount invested as well as the estimated corpus:

• Difference in amount invested: Starting at 33 means investing ₹3 lakh less than Case I, while starting at 38 means investing ₹6 lakh less.
• Difference in estimated corpus: The corpus falls by about ₹1.02 crore in Case II and about ₹1.59 crore in Case III compared with Case I.

The impact of delaying SIP comes mainly from having less time in the market. Starting later can reduce both the amount invested and the time available for potential growth.

• Less time for compounding
• Lesser SIP instalments and lower total investment
• Fewer mutual fund units accumulated over time
• Less opportunity for rupee cost averaging

Here are some common reasons or excuses investors often use to justify delaying SIP investments:

If you have been delaying SIP investment, you can still try to make up for some of the lost time. The right approach depends on your budget and financial goals.

1. Step-Up SIP

Increase your SIP amount gradually, for example every year. This can help you invest more as your income grows and partly reduce the cost of delay in SIP.

2. Lump-Sum Boost

If you receive an annual bonus or have extra savings, you may add a lump-sum investment to increase the amount already invested. This can help strengthen your corpus after a delayed start.

3. More Frequent SIPs

You may choose a more frequent SIP schedule, such as weekly instead of monthly, if the scheme allows it. This can help you invest more regularly, though the impact of delaying SIP still depends mainly on how much you invest and how long you stay invested.

Plus, if its a goal where you can push the investment duration, doing so might also help in case of a delayed start. 

The impact of delaying SIP can become more noticeable over longer investment periods. Starting later means less time for compounding, lesser number of SIP instalments and a shorter period to take part in market growth.

Starting earlier, even with a smaller amount, can give your investment more time to grow. If you have already delayed, increasing contributions over time may help you work towards your goals more effectively.

1. What is cost of delay in SIP and how does it affect long-term returns?

The cost of delay in SIP is the potential loss from starting later. A delay means fewer number of SIP instalments and less time for compounding, which may reduce the corpus you build over time.

2. What is the impact of delaying SIP investment on the final mutual fund corpus?

The impact of delaying SIP investment can be a smaller final corpus because you invest for fewer years. You also contribute less principal and give your money less time to benefit from market-linked growth.

3. Is SIP investment safe for investors who are just starting out?

Whether an SIP investment is safe or not depends on the mutual fund scheme chosen. SIPs are only a way of investing regularly. The actual risk depends on the underlying assets, fund category and market conditions.

4. How does delaying SIP investment by even one year reduce potential wealth creation?

Delaying SIP investment by one year means missing 12 monthly contributions and losing one year of potential compounding on those investments. Over a long period, even this shorter delay may affect the final corpus.

5. How does the impact of delaying SIP compare across a 10-year and 20-year investment horizon?

The impact of delaying SIP is generally more noticeable over a 20-year horizon because the missed investments lose more years of potential compounding. Over 10 years, the effect may be smaller, though the final corpus can still be lower.

An Investor Education and Awareness Initiative by Tata Mutual Fund. 

To know more about KYC documentation requirements and procedure for change of address, phone number, bank details, etc., please visit: https://www.tatamutualfund.com/deshkarenivesh

Please deal only with registered Mutual Funds, details of which can be verified on the SEBI website under ‘Intermediaries / Market infrastructure institutions.’

All complaints regarding Tata Mutual Fund may be directed to service@tataamc.com and/or https://scores.sebi.gov.in/ (SEBI SCORES portal) and/or https://smartodr.in/login

Nomination is advisable for all folios opened by an individual, especially with sole holding, as it facilitates an easy transmission process. 

This communication is a part of the investor education and awareness initiative of Tata Mutual Fund.