Rs 111 SIP for 41 years vs Rs 1,111 SIP for 21 years vs Rs 11,111 SIP for 11 years; which of 3 can give 27-time return?
Power of Compounding: Investors who want to take the maximum benefit of compounding need to stretch their investment as long as possible. Even if they get an average return on their investment, they can create a large corpus from comparatively much smaller investment.
Power of Compounding: Patience pays in investment! But how does it pay? A Rs 2,500 monthly SIP investment can generate a corpus of Rs 88.25 lakh, Rs 1.63 crore, and Rs 2.97 crore if, at a 12 per cent annualised return, one invests that amount for 30 years, 35 years, and 40 years, respectively. It's because they get compound growth on their investment, where a long duration accelerates growth faster. A Rs 1,000 monthly SIP investment can generate over Rs 1 crore corpus, and a Rs 12,500 monthly SIP can generate a near-Rs 15 crore corpus if both investments get a 12 per cent annualised return for 40 years. See how time plays a key role in the compound growth of investment and which of the 3 SIPs—a Rs 111 monthly SIP for 41 years, a Rs 1,111 monthly SIP for 21 years, and a Rs 11,111 monthly SIP for 11 years—can generate a higher corpus.
Photo: Unsplash/Pixabay
From Rs 5,000 monthly SIP to Rs 5 crore corpus
If a person wants to create a Rs 5 crore corpus from a Rs 5,000 monthly SIP investment without increasing their investment for the entire duration of the investment.
From Rs 5,000 monthly SIP to Rs 5 crore corpus
At 12 per cent annualised growth, they can achieve the target in approximately 39 years. But if they get 13 per cent growth on the same investment, the estimated corpus generated in 39 years can be Rs 7.18 crore. The total investment in either case will be Rs 23,40,000.
Rs 2 lakh lump sum investment to Rs 2 crore corpus
Now if a person has Rs 2 lakh and wants to invest it as a lump sum amount in a mutual fund. Let's see how the corpus can grow in 20 and 40 years.
At a 12 per cent annualised return, the estimated corpus in 20 years will be Rs 19,29,259, and the estimated corpus in 40 years will be Rs 1,86,10,194.
Rs 2 lakh lump sum investment to Rs 2 crore corpus
But if the rate of annualised return is 12.5 per cent, the estimated corpus can be much higher.
In that case, the estimated corpus in 20 years will be Rs 21,09,019, while the estimated corpus will be Rs 2,22,39,801 in 40 years.
Story calculations
In the story, we will calculate the corpus generated from Rs 111 monthly SIP investment in 41 years, Rs 1,111 monthly SIP investment in 21 years, and Rs 11,111 monthly SIP investment in 11 years. In each case, we will take 12 per cent as the annualised return.
Corpus generated from Rs 111 monthly SIP investment in 41 years
In 41 years, the total invested money will be Rs 54,612.
Corpus generated from Rs 111 monthly SIP investment in 41 years
At a 12 per cent annualised return, estimated capital gains will be Rs 14,33,034.18, and the estimated corpus will be Rs 14,87,646.18.
Corpus generated from Rs 1,111 monthly SIP investment in 21 years
If one invests Rs 1,111 monthly in a SIP, the investment in 21 years will be Rs 2,79,972.
Corpus generated from Rs 1,111 monthly SIP investment in 21 years
Estimated capital gains from that investment will be Rs 9,85,095.05, and the estimated corpus generated will be Rs 12,65,067.05.
Corpus generated from Rs 11,111 monthly SIP investment in 11 years
The total investment in 11 years will be Rs 14,66,652.
Corpus generated from Rs 11,111 monthly SIP investment in 11 years
Estimated capital gains from that investment will be Rs 15,84,593.21, and the estimated corpus generated will be Rs 30,51,245.21.
Conclusion
In all 3 examples, the impact of compounding on a long-term investment can be seen. The investments are growing faster with time.
In the first case, the total investment is Rs 54,612, and the estimated corpus is Rs 14,87,646.18, over a 27-time return.
Conclusion
In the second case, the total investment is Rs 2,79,972, and the estimated corpus is Rs 9,85,095.05, a 3.52-time return.
In the third case, the total investment is Rs 14,66,652, and the estimated corpus is Rs 30,51,245.21, a 2.08-time return.