Small SIP, Big Impact: Rs 4,444 monthly SIP for 30 years, Rs 6,666 for 25 or Rs 9,999 for 20, which do you think works best?

A Systematic Investment Plan (SIP) enables investors to channelise their surplus funds gradually to their chosen equity-related mutual fund schemes. This way, an investor not only gets to stay committed to their investment strategy but also harnesses the power of compounding. In this article, let's consider four scenarios to understand how time matters in compounding: a Rs 4,444 monthly SIP for 30 years, a Rs 6,666 monthly SIP for 25 years, a monthly SIP of Rs 8,888 for 22 years, and one of Rs 9,999 for 20 years.

Can you guess the difference in the outcome in all four scenarios at an expected annualised return of 12 per cent?

SIP Return Estimates | Which one will you choose: Rs 4,444 monthly investment for 30 years, Rs 6,666 for 25 years, Rs 8,888 for 22 years or Rs 9,999 for 20 years?  

Scenario 1: Rs 4,444 monthly SIP for 30 years

Calculations show that at an annualised 12 per cent return, a monthly SIP of Rs 4,444 for 30 years (360 months) will lead to a corpus of approximately Rs 1.57 crore (a principal of almost Rs 16 lakh and an estimated return of Rs 1.41 crore). 

Scenario 2: Rs 6,666 monthly SIP for 25 years

Similarly, at the same expected return, a monthly SIP of Rs 6,666 for 25 years (300 months) will accumulate wealth to the tune of Rs 1.26 crore (a principal of Rs 19,99,800 and an estimated return of Rs 1.06 crore), as per calculations.

Scenario 3: Rs 8,888 monthly SIP for 22 years

Similarly, at the same expected return, a monthly SIP of Rs 8,888 for 22 years (264 months) will accumulate wealth of around Rs 1.15 crore (a principal of Rs 23,46,432 and an estimated return of Rs 91.71 lakh), as per calculations.

Scenario 4: Rs 9,999 monthly SIP for 20 years

Can you guess the corpus you will end up with with a Rs 9,999 monthly SIP for 20 years?

It will be approximately, Rs 99.90 lakh (a principal of Rs 23,99,760 and an estimated return of Rs 75.91 lakh, calculations show. 

ALSO READ: Small SIP, Big Impact: Rs 8,888 monthly investment for 25 years or Rs 10,000 for 20 years, which do you think works better?

Now, let's look at these estimates in detail (figures in rupees): 

Power of Compounding | Scenario 1

Power of Compounding | Scenario 2

Power of Compounding | Scenario 3

Power of Compounding | Scenario 4

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