Rs 11,111 SIP for 30 years vs Rs 22,222 SIP for 24 years: Which investment can create a larger corpus in long term? See details to know
Rs 11,111 SIP for 30 years vs Rs 22,222 SIP for 24 years: Mutual fund SIP investments grow faster with time because of the power of compounding. The one who stays in their investment for a long term can get surprising results.
Rs 11,111 SIP for 30 years vs Rs 22,222 SIP for 24 years: A small monthly SIP investment can zoom to a giant corpus in the long run. We often hear claims of people, mutual fund houses, and investment agencies that a person created a corpus worth crores with a small monthly SIP investment. How does it happen? It increases by many times because of the compound growth. As a result, a person who begins with a small monthly SIP investment and continues it for a long time can create a higher corpus compared to a person with a larger monthly SIP investment and a shorter duration. Let's understand this phenomenon with a few examples, and also know which of the 2-Rs 11,111 monthly SIP investment for 30 years or Rs 22,222 monthly SIP investment for 24 years- can create a higher corpus.
Photos: Unsplash/Pixabay
(Disclaimer: This is not investment advice. Do your own due diligence or consult an expert for financial planning.)
Power of compounding
The power of compounding helps investments grow faster with time as the investor gets return on return. E.g., if one invests Rs 1 lakh in a scheme and gets a 12 per cent annualised return on that, then at the end of the 1st year, the corpus will be Rs 1.12 lakh, but for the second year, the investor will get a return on Rs 1.12 lakh and not just on the principal amount of Rs 1 lakh. So, in the longer run, even a Rs 1 lakh investment can turn into Rs 1 crore.
From Rs 1,000 monthly SIP to Rs 50 lakh corpus
Now let's take the example of a Rs 1,000 monthly SIP investment. A person will invest Rs 12,000 in 10 years, Rs 24,000 in 20 years, and Rs 36,000 in 30 years, but let's see how it will grow with time and in how many years it can create a Rs 50 lakh corpus at a 12 per cent annualised return.
Corpus from Rs 1,000 monthly SIP investment in 10, 20 years
In 10 years, it can create an estimated corpus of Rs 2,32,339.
In 20 years, it will grow to an estimated corpus of Rs 9,99,148.
Corpus from Rs 1,000 monthly SIP investment in 30, 34 years
In 30 years, the estimated corpus will become Rs 35,29,914.
In 33 years, the estimated corpus will grow to Rs 50,93,998. The total investment will be Rs 3,96,000.
Why it happens?
So, here, you can see that the corpus is growing faster with time because of the power of compounding.
Now, let's compare it with a Rs 10,000 monthly SIP investment.
Rs 10,000 monthly SIP investment
The who starts a Rs 10,000 monthly investment will invest Rs 1,20,000 in 1 year, Rs 12,00,000 in 10 years, and Rs 18,00,000 in 15 years. Let's see at a 12 per cent annualised return, how much corpus it can create in 15 years.
Rs 10,000 monthly SIP investment in 10, 15 years
In 10 years, the estimated corpus will be Rs 23,23,391.
In 15 years, it will grow to an estimated Rs 50,45,760.
Rs 1,000 SIP investment vs Rs 10,000 SIP investment
What we see is that a Rs 1,000 monthly SIP created a higher corpus than a Rs 10,000 monthly SIP investment because of 18 years of extra compounding. While the investment in that duration was Rs 14,04,000 less in the case of the Rs 1,000 SIP investment.
Rs 11,111 SIP for 30 years vs Rs 22,222 SIP for 24 years
We will take the 12 per cent annualised return for our calculations in both cases and will calculate estimated corpuses in both cases.
Rs 11,111 monthly SIP investment for 30 years
In 30 years, the total investment will be Rs 39,99,960, estimated capital gains will be Rs 3,52,20,912, and the estimated corpus will be Rs 3,92,20,872.
Rs 22,222 SIP for 24 years
In 24 years, the total investment will be Rs 63,99,936, estimated capital gains will be Rs 3,07,70,518, and the estimated corpus will be Rs 3,71,70,454.
Conclusion
Here, we see that with just 6 years of extra investment, a Rs 11,111 monthly SIP investment created an estimated higher corpus of Rs 20,50,418 with Rs 23,99,976 less investment amount. Such surprising results are possible because of the power of compounding.