Power of Compounding: How much money will you lose if you delay your Rs 10,000 monthly SIP investment by 5, 10, 15, or 20 years? See chart to know
Power of Compounding: In retirement planning, we often hear that those who start investing early are likely to build a much larger corpus compared to those who begin late. The cost of delay in investment may cost dearly to an investor. Just a delay of 5 years can reduce the retirement corpus by crores.
SIP Returns in Retirement Planning: We hear that one should start their retirement planning early, and delaying it can impact their retirement corpus significantly. But how does it affect? Have you ever thought about how much your retirement corpus will be shortened by if you delay your investment by a few years? How the power of compounding can benefit you if you make a monthly SIP investment for a long duration compared to the investor with a larger-amount monthly SIP investment than you but with a shorter duration. See examples to understand the power of compounding, the cost of investment delay, and how the retirement corpus will be affected if someone delays their Rs 10,000 monthly SIP investment by 5, 10, 15, or 20 years.
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Power of compounding
Let's take the example of a person who invests Rs 5,000 a month through an SIP. At 12 per cent annualised return, here's how much fund they can generate in 20, 25, and 30 years.
In 20 years, the total investment will be Rs 12,00,000, and the estimated corpus will be Rs 49,95,740.
Power of compounding
In 25 years, the total investment will be Rs 15,00,000, and the estimated corpus will be Rs 94,88,175.
In 30 years, the estimated corpus will be 1,76,49,569, on an investment of Rs 18,00,000.
Power of compounding
In all 3 examples, you can see that the investment increases by just Rs 3,00,000 in every 5-year block, but the difference between the expected corpus is much more in every stance.
Cost of delay
Take the example of A and B. A starts Rs 5,000 monthly SIP investment and does it for 33 years, and B starts a Rs 50,000 monthly SIP investment and does it for 15 years. Both get 12 per cent annualised returns on their investments.
Cost of delay
A will invest Rs 19,80,000 in 33 years, and their estimated corpus will be Rs 2,54,69,990.
On the other hand, B will invest 90,00,000 in 15 years, but their estimated corpus will be Rs 2,52,28,800.
Cost of delay
Despite investing more than 4 times, B's estimated corpus is less than A's estimated corpus. It is because A's investment horizon is 18 years more than B's, and the investment duration plays a key role in compounding.
Calculations
For our story, we will take the example of Rs 10,000 monthly SIP investment. We will start with the example of a person starting the investment at 25 years of age. The person will invest till 60 years of age. We will show how their corpus will be shortened if they delay their investment by 5, 10, 15, and 20 years. The annualised SIP return (XIRR) on their investment will be 12 per cent.
Cost of delay: Corpus generated when they start at 25 years of age
If they start at 25 years of age, they will get 35 years to invest.
In 35 years, their investment will be Rs 42,00,000, the estimated capital gain will be Rs 6,07,52,691, and the estimated corpus will be Rs 6,49,52,691.
Cost of delay: Corpus generated when they delay investment by 5 years
If the same person starts it at 30 years of age, they will get 30 years to invest.
In 30 years, the total investment will be Rs 36,00,000, the estimated capital gain will be Rs 3,16,99,138, and the estimated corpus will be Rs 3,52,99,138.
Cost of delay: Corpus generated when they delay investment by 10 years
If they start it at 35 years of age, they will get 25 years to invest.
In 25 years, their investment will be Rs 30,00,000, the estimated capital gain will be Rs 1,59,76,351, and the estimated corpus will be Rs 1,59,76,351.
Cost of delay: Corpus generated when they delay investment by 15 years
If they delay it by 15 years, they will get 20 years to invest.
In 20 years, their investment will be Rs 24,00,000, the estimated capital gain will be Rs 75,91,479, and the estimated corpus will be Rs 99,91,479.
Cost of delay: Corpus generated when they delay investment by 20 years
A 20-year delay for them means an investment horizon of 15 years.
During that period, the investment will be Rs 18,00,000, the estimated capital gain will be Rs 32,45,760, and the estimated corpus will be Rs 50,45,760.
Conclusion
Let's compare the situations when investment horizons are 15 years and 30 years, respectively.
In 15 years, the investment is Rs 24,00,000, and the estimated corpus is Rs 50,45,760, while in 30 years, the investment is Rs 36,00,000, and the estimated corpus is Rs 3,52,99,138. The vast difference between the two corpuses is because of the power of compounding. It also shows how the cost of delay can impact one's corpus.
