Small SIP, Big Impact: Rs 5,555 monthly investment for 25 years, Rs 7,777 for 22 years or Rs 9,999 for 19 years, which do you think works best?

Systematic Investment Plans (SIPs) allow investors to park their surplus cash steadily in their mutual fund scheme of choice. This is what makes them a popular way to invest in mutual funds. An SIP not only allows an investor to stay committed to their long-term investment strategy but also to maximise the benefit 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 5,555 monthly SIP for 25 years, a Rs 7,777 monthly SIP for 22 years and a Rs 9,999 monthly SIP for 19 years.

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

SIP Return Estimates | Which one will you choose: Rs 5,555 monthly investment for 25 years, Rs 7,777 for 22 years or Rs 9,999 for 19 years?  

Scenario 1: Rs 5,555 monthly SIP for 25 years

Calculations show that at an annualised 12 per cent return, a monthly SIP of Rs 5,555 for 25 years (300 months) will lead to a corpus of approximately Rs 1.05 crore (a principal of Rs 16,66,500
and an estimated return of Rs 88.75 lakh). 

Scenario 2: Rs 7,777 monthly SIP for 22 years

Similarly, at the same expected return, a monthly SIP of Rs 7,777 for 22 years (264 months) will accumulate wealth of more than Rs 1 crore, as per calculations (a principal of Rs 20.53 lakh and an expected return of Rs 80.25 lakh).

Scenario 3: Rs 9,999 monthly SIP for 19 years

Similarly, at the same expected return, a monthly SIP of Rs 9,999 for 19 years (228 months) will accumulate wealth to the tune of Rs 87.52 lakh, as per calculations (a principal of Rs 22.80 lakh and an expected return of Rs 64.73 lakh).

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

ALSO READ: Small SIP, Big Impact: Rs 1,111 monthly SIP for 40 years, Rs 11,111 for 20 years or Rs 22,222 for 10 years, which do you think works best?

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