Small SIP, Big Impact: Rs 1,100 monthly SIP for 30 years or Rs 11,000 for 12 years, which do you think works better?
Power of Compounding: An SIP or systematic investment plan is a popular way of investing in mutual fund schemes of choice, as it enables investors to direct their cash towards a desired equity-related scheme gradually. In this article, let's look at three scenarios to learn about the role time plays when it comes to compounding.
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A Systematic Investment Plan (SIP) is a popular way to invest in mutual funds, as it allows investors to utilise their surplus funds gradually in their chosen equity-related mutual fund scheme. This way, an investor not only gets to stay committed to their investment strategy but is also able to harness the power of compounding. For the unversed, compounding grows investments exponentially over time, helping in creating substantial wealth over the years. At times, compounding yields surprising results, especially over longer periods. In this article, let's consider three scenarios to understand how time matters in compounding: a Rs 1,100 monthly SIP for 30 years, a Rs 11,000 monthly SIP for 12 years and a Rs 21,000 monthly SIP for 8 years.
Can you guess the difference in the outcome in all three scenarios at an expected annualised return of 12 per cent?
SIP Return Estimates | Which one will you choose: Rs 1,100 monthly investment for 30 years, Rs 11,000 for 12 years or Rs 21,000 for 8 years?
Scenario 1: Rs 1,100 monthly SIP for 30 years
Calculations show that at an annualised 12 per cent return, a monthly SIP of Rs 1,100 for 30 years (360 months) will lead to a corpus of approximately Rs 38.83 lakh (a principal of Rs 3.96 lakh and an estimated return of Rs 34.87 lakh).
Scenario 2: Rs 11,000 monthly SIP for 12 years
Similarly, at the same expected return, a monthly SIP of Rs 11,000 for 15 years (180 months) will accumulate wealth to the tune of Rs 35.45 lakh (a principal of Rs 15.84 lakh and an estimated return of Rs 19.61 lakh), as per calculations.
Scenario 3: Rs 21,000 monthly SIP for 8 years
Can you guess the corpus you will end up with with a Rs 21,000 monthly SIP for 8 years?
It will be approximately, Rs 33.92 lakh, calculations show.
Now, let's look at these estimates in detail (figures in rupees):
Power of Compounding | Scenario 1
| Period (in Years) | Investment | Return | Corpus |
| 1 | 13,200 | 890 | 14,090 |
| 2 | 26,400 | 3,568 | 29,968 |
| 3 | 39,600 | 8,258 | 47,858 |
| 4 | 52,800 | 15,218 | 68,018 |
| 5 | 66,000 | 24,735 | 90,735 |
| 6 | 79,200 | 37,133 | 1,16,333 |
| 7 | 92,400 | 52,777 | 1,45,177 |
| 8 | 1,05,600 | 72,079 | 1,77,679 |
| 9 | 1,18,800 | 95,504 | 2,14,304 |
| 10 | 1,32,000 | 1,23,573 | 2,55,573 |
| 11 | 1,45,200 | 1,56,876 | 3,02,076 |
| 12 | 1,58,400 | 1,96,077 | 3,54,477 |
| 13 | 1,71,600 | 2,41,924 | 4,13,524 |
| 14 | 1,84,800 | 2,95,260 | 4,80,060 |
| 15 | 1,98,000 | 3,57,034 | 5,55,034 |
| 16 | 2,11,200 | 4,28,316 | 6,39,516 |
| 17 | 2,24,400 | 5,10,313 | 7,34,713 |
| 18 | 2,37,600 | 6,04,383 | 8,41,983 |
| 19 | 2,50,800 | 7,12,058 | 9,62,858 |
| 20 | 2,64,000 | 8,35,063 | 10,99,063 |
| 21 | 2,77,200 | 9,75,342 | 12,52,542 |
| 22 | 2,90,400 | 11,35,086 | 14,25,486 |
| 23 | 3,03,600 | 13,16,763 | 16,20,363 |
| 24 | 3,16,800 | 15,23,156 | 18,39,956 |
| 25 | 3,30,000 | 17,57,399 | 20,87,399 |
| 26 | 3,43,200 | 20,23,023 | 23,66,223 |
| 27 | 3,56,400 | 23,24,010 | 26,80,410 |
| 28 | 3,69,600 | 26,64,843 | 30,34,443 |
| 29 | 3,82,800 | 30,50,577 | 34,33,377 |
| 30 | 3,96,000 | 34,86,905 | 38,82,905 |
Power of Compounding | Scenario 2
| Period (in Years) | Investment | Return | Corpus |
| 1 | 1,32,000 | 8,903 | 1,40,903 |
| 2 | 2,64,000 | 35,675 | 2,99,675 |
| 3 | 3,96,000 | 82,584 | 4,78,584 |
| 4 | 5,28,000 | 1,52,183 | 6,80,183 |
| 5 | 6,60,000 | 2,47,350 | 9,07,350 |
| 6 | 7,92,000 | 3,71,327 | 11,63,327 |
| 7 | 9,24,000 | 5,27,769 | 14,51,769 |
| 8 | 10,56,000 | 7,20,792 | 17,76,792 |
| 9 | 11,88,000 | 9,55,037 | 21,43,037 |
| 10 | 13,20,000 | 12,35,730 | 25,55,730 |
| 11 | 14,52,000 | 15,68,763 | 30,20,763 |
| 12 | 15,84,000 | 19,60,774 | 35,44,774 |
Power of Compounding | Scenario 3
| Period (in Years) | Investment | Return | Corpus |
| 1 | 2,52,000 | 16,996 | 2,68,996 |
| 2 | 5,04,000 | 68,107 | 5,72,107 |
| 3 | 7,56,000 | 1,57,661 | 9,13,661 |
| 4 | 10,08,000 | 2,90,532 | 12,98,532 |
| 5 | 12,60,000 | 4,72,214 | 17,32,214 |
| 6 | 15,12,000 | 7,08,898 | 22,20,898 |
| 7 | 17,64,000 | 10,07,559 | 27,71,559 |
| 8 | 20,16,000 | 13,76,058 | 33,92,058 |
SIP & Compounding | What is compounding and how does it work?
For the sake of simplicity, one can understand compounding in SIPs as 'return on return', wherein initial returns get added up to the principal to boost future returns, and so on.
Compounding helps in generating returns on both the original principal and the accumulated interest gradually over time, contributing to exponential growth over longer periods.
This approach eliminates the need for a lump sum investment, making it convenient for many individuals—especially the salaried—to invest in their preferred mutual funds. Read more on the power of compounding
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