Compounding Effect on Retirement Corpus: In how many years, Rs 12,000 monthly SIP investment can generate funds worth Rs 1.29 cr, Rs 4.74 cr, and Rs 8.93 cr?
Impact of Compounding on Retirement Corpus: Retirement planning is like starting with slow steps, gathering speed and making a giant leap, where monthly SIP investment and years of compounding can help one build a giant retirement corpus in the long run.
Power of Compounding for Retirement Corpus Building: Starting with a Rs 3,000 monthly SIP investment and beginning with a Rs 30,000 monthly SIP investment is not the same, but the Rs 3,000 monthly SIP investment can generate a higher corpus than later if the investment duration is twice. This can happen because of the power of compounding, where years or returns on returns can help one build a giant corpus despite starting with a low monthly SIP investment.
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(Disclaimer: This is not investment advice. Do your own due diligence or consult an expert for retirement planning.)
Understand it with examples
A person begins their journey with Rs 3,000 monthly investment at 20 years of age and continues it for 40 years. They get 12 per cent annualised SIP returns on that. What will be expected corpus after 40 years.
The investment in those years will be Rs 14,40,000, the expected return will be Rs 3,42,07,261, and the expected amount will be Rs 3,56,47,261.
Understand it with examples
Another person starts a Rs 30,000 monthly SIP investment for continues it for 20 years. After that investment period, the invested amount will be Rs 72,00,000, the expected return will be Rs 2,27,74,438, and the estimated corpus will be Rs 2,99,74,438.
See example of Rs 1,000 monthly SIP and Rs 20,000 monthly SIP
Rs 1,000 monthly SIP investment for 40 years at 12 per cent annualised return can generate Rs 1,18,82,420 corpus on investment of Rs 4,80,000.
See example of Rs 1,000 monthly SIP and Rs 20,000 monthly SIP
Rs 20,000 monthly SIP investment for 16 years at 12 per cent annualised return is expected to generate Rs 1,16,27,564 retirement corpus despite investment of Rs 38,40,000.
Thus, we see that a much smaller amount than the other can create a larger corpus if we let it compound for more years. Compounding shows its impact more significantly in the long term.
Calculations for corpus from Rs 12,000 monthly SIP investment
We will take the example of Rs 12,000 monthly SIP investment, where the rate of annualised return will be 12.5 per cent.
Years to take from Rs 12,000 monthly investment to Rs 1.29 cr corpus
It will take approximately 20 years to create a Rs 1.29 crore corpus.
Years to take from Rs 12,000 monthly investment to Rs 1.29 cr corpus
The invested amount in that period will be Rs 28,80,000, estimated capital gains will be Rs 99,54,235, and the estimated corpus will be Rs 1,28,34,235.
Years to take from Rs 12,000 monthly investment to Rs 2.49 cr corpus
It will take estimated 25 years to create a Rs 2.49 crore corpus.
Years to take from Rs 12,000 monthly investment to Rs 2.49 cr corpus
The expected return in that period will be Rs 36,00,000, expected capital gains will be Rs 2,13,03,738, and the expected corpus will be Rs 2,49,03,738.
Years to take from Rs 12,000 monthly investment to Rs 4.74 cr corpus
The estimated duration to reach that target will be 30 years.
Years to take from Rs 12,000 monthly investment to Rs 4.74 cr corpus
The investment will be Rs 43,20,000, the expected return will be Rs 4,30,59,761, and the estimated corpus will be Rs 4,73,79,761.
Years to take from Rs 12,000 monthly investment to Rs 8.93 cr corpus
In estimated 35 years, the investor can achieve this target. The investment in those years will be Rs 8,41,94,973, and the estimated corpus will be Rs 8,92,34,973.
Years to take from Rs 12,000 monthly investment to Rs 8.93 cr corpus
It means if a 25-year-old start Rs 12,000 monthly SIP investment and continue it for 35 years, they can create an estimated corpus of Rs 8,92,34,973 in 35 years or by 60 years of age.