Power of Compounding: How quickly can monthly SIP of Rs 3,000, Rs 4,000, and Rs 5,000 build Rs 2 Crore corpus?
To experience the power of compounding, one must start investing early and they would be able to gather a large sum of money at the retirement age. But it is rightly said it is never too late to start investing. Therefore, today we will talk about how long it will take to reach Rs 2 crore retirement corpus if your monthly SIP is Rs 3,000, Rs 4,000, or Rs 5,000.
Most of us learned about compound interest back in school, but few realize how exceptionally it can impact an investor’s journey. Understanding compounding allows investors to accumulate a substantial corpus through small monthly contributions over a long period. It helps investors to enjoy financial freedom and achieve their financial goals. Let’s understand how long it would take to reach Rs 2 crore retirement corpus with a monthly SIP of Rs 3,000, Rs 4,000, or Rs 5,000.
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(Disclaimer: Our calculations are projections and not investment advice. Do your own due diligence or consult an expert for financial planning.)
Power of compounding
The power of compounding is the process of earning interest on interest, that is the amount of money you invest will generate earnings from both the principal amount and the accrued earnings of compounding periods. The greater the number of compounding periods, the greater the compound interest growth. However, in equity SIP, you don’t get a fixed interest. Here, you get annualised returns, which, when compounded for the long term, increase the value of your investment.
What is SIP?
A Systematic Investment Plan (SIP) is an investment that allows investors to invest a fixed amount in a mutual fund scheme at regular intervals. The investment in SIP can be done daily, weekly, monthly, quarterly, or half-yearly, yearly.
Compound interest: Start saving early
One must start investing early in their life or professional career to make the most of the power of compounding. If you put your money into an investment plan as soon as you start earning, you can enable your savings to grow significantly over time. The longer you remain invested, the faster your investment grows, since you allow your money to grow further because the power of compounding increases with time.
Benefits of compounding
Your savings can grow faster
Long-term growth
Reduces risk
Encourages long-term planning
How does power of compounding work?
There are several investment options where the power of compounding is used and the interest earned is credited to your invested funds. For example, suppose you invest an amount of money such as Rs 100, you get a return at a 5 per cent interest rate on it. Now, in the next compounding cycle, the return will be calculated at Rs 105 instead of Rs 100.
From Rs 3,000 monthly SIP to Rs 2 crore corpus at 12 per cent annualised return
It will take approximately 36 years to achieve the target of Rs 2 crore retirement corpus. During that time, the investment will be Rs 12,96,000, the estimated long-term capital gains will be Rs 2,06,99,523 and the estimated retirement corpus will be Rs 2,19,95,523.
From Rs 4,000 monthly SIP to Rs 2 crore corpus
It will approximately take 33 years to achieve the target of Rs 2 crore corpus. During that time, the investment will be Rs 15,84,000, the estimated long-term capital gains will be Rs 1,87,91,992 and the estimated retirement corpus will be Rs 2,03,75,992.
From Rs 5,000 monthly SIP to Rs 2 crore corpus
It will take approximately 32 years to achieve the target of Rs 2 crore corpus. During that time, the investment will be Rs 19,20,000, the estimated long-term capital gains will be Rs 2,06,26,485 and the estimated retirement corpus will be Rs 2,25,46,485.
Power of Compounding: Putting it into practice
You can use these rules to grow your money and achieve financial success. By being consistent with your investments and seeking expert advice, you can make the most of your mutual fund investments.