Compounding Returns: How 3% extra return can take Rs 1.83 cr corpus to Rs 5.52 cr in 5 years

Compounding Returns: When we make some investment, our target is to get maximum returns from them. To get high returns, you need to have the right investment strategy, a good mix of investment options, and the acumen to keep revising strategy.

A one per cent rise in return may not be a significant factor in the small run, but in the long run, even a 0.5 per cent return matters.

E.g., if A and B invest Rs 5,000 monthly each in a mutual fund SIP for 5 years and get 12 per cent and 14 per cent returns, respectively, on it, their estimated corpus in that period will be Rs 4,05,518, and Rs 4,26,080, respectively.

But if they continue it for 20 years more, their estimated corpus will be Rs 85,11,033 and Rs 1,17,23,201, respectively.

It happens because compounding of returns shows more impact in the long run, and even a 1 per cent extra return can help one's corpus increase significantly. 

In this write-up, we will tell how a 3 per cent extra return for 5 more years can take one's corpus from estimated Rs 1.83 crore to Rs 5.52 crore. 

Investment conditions

We will take the example of Rs 20,000 monthly SIP, where the expected annualised return will be 12 per cent.

The investment duration will be 20 years. In the next two scenarios, the monthly SIP investment will remain the same.

In the second scenario, we will show that what would have been the corpus with a 15 per cent annualised return for 20 years.

In the third scenario, we will show that what would be the corpus with a 15 per cent annualised return for 25 years.

Corpus on Rs 20,000 monthly SIP investment for 20 years (at 12% return)

In this case, the invested amount will be Rs 48,00,000, estimated capital gains will be Rs 1,35,97,147, and the estimated corpus will be Rs 1,83,97,147.

Corpus on Rs 20,000 monthly SIP investment for 20 years (at 15% return)

The estimated capital gains in such a case will be Rs 2,17,41,469 and the estimated target will be Rs 2,65,41,469.

Corpus on Rs 20,000 monthly SIP investment for 25 years (at 15% return)

If the same person continues investment for another 5 years, their extra investment in that period will be Rs 12,00,000, but their estimated capital gains in 25 years will be Rs 4,91,31,216, and the estimated corpus will be Rs 5,51,31,216.