The Compound Effect: How your corpus can soar from Rs 1,99,82,958 to Rs 4,08,70,097 if you get 2% extra return on your SIP investment
Power of SIP Returns: The returns that you get on your SIP investment play a key role in determining your corpus. Even if you get 1 per cent extra SIP return on your investments, your corpus value may change in crores in the long run because of the power of compounding.
Power of SIP Investment: When we start an investment, our aim is to get the maximum post-tax returns. But can the difference of 1 per cent on the return make any difference to your fortunes? In the short term, probably, it may not. But in the long run, it can certainly change your corpus value by a few crores. Specially in cases where the monthly SIP or lump sum investment is substantial, this difference can help you accomplish your many financial goals. The sea change comes because of SIP compound returns, where investors get returns on growth also, and not just on the principal amount. Through examples, see how a 1 per cent difference can change your corpus value noticeably and how you can create a Rs 4.09 crore corpus instead of Rs 2 crore if you get a 2 per cent extra return on your SIP investment.
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(Disclaimer: This is not investment advice. Do your own due diligence or consult an expert for financial planning.)
Impact of 1% return in short term
Let's take the example of a Rs 5,000 monthly SIP investment for 5 years. What will be the corpus if the rates of return are 12 per cent and 13 per cent, respectively?
Impact of 1% return in short term
At 12 per cent return, the estimated corpus will be Rs 4,12,432.
At 13 per cent return, the estimated corpus will grow to Rs 4,24,017.
Impact of 1% return in long term
In both cases, the difference is not much. But let's fast froward it to 30 years.
In 30 years, at a 12 per cent return, the estimated corpus value will be Rs 1,76,49,569.
At 13 per cent return, the estimated corpus will be Rs 2,21,03,234. The difference is Rs 44,53,665 at Rs 18,00,000 investment in each case.
Example of Rs 40,000 monthly SIP investment
Let's take a bigger investment amount. A Rs 40,000 monthly SIP investment for 4 years at 12 per cent and 13 per cent returns, respectively.
At 12 per cent return, the estimated corpus value will be Rs 24,73,393.
At 13 per cent return, the estimated corpus value will be Rs 25,28,006. There is not much difference in 4 years. But let's see the large difference in 25 years.
Example of Rs 40,000 monthly SIP investment
At 12 per cent return in 25 years, the estimated corpus value will be Rs 7,59,05,404.
At 13 per cent in the same duration, the estimated corpus value will increase to Rs 9,08,57,400. The difference is Rs 1,49,51,996 at an investment of Rs 1,20,00,000 in each case.
How your corpus can be Rs 4.09 crore instead of Rs 2 crore?
Let's assume you start a Rs 20,000 monthly SIP investment for 20 years. The rate of annualised return is 12 per cent.
What will be the corpus in 20 years?
The investment in 20 years will be Rs 48,00,000; estimated capital gains will be Rs 1,51,82,958, and the estimated corpus will be Rs 1,99,82,958.
Another condition for Rs 20,000 monthly SIP investment
Now, let's assume the investor gets a 14 per cent return on these investments. See what will be corpus in 20 years?
Corpus at 14% return in 20 years
Estimated capital gains at a 14 per cent annualised return in 20 years will be Rs 2,15,26,926, and the estimated corpus will be Rs 2,63,26,926. Let's make this investment for 3 more years, and let's see what difference it can make.
Corpus at 14% return in 23 years
In 23 years, the investment will be Rs 55,20,000, estimated capital gains will be Rs 3,53,50,097, and the estimated value will be Rs 4,08,70,097.
What's the difference in corpus at 12% and 14% returns
At a 12 per cent annualised return, an Rs 48,00,000 SIP investment in 20 years grows to an estimated Rs 1,99,82,958.
What's the difference in corpus at 12% and 14% returns
But if the same investor gets a 14 per cent annualised return on it for 23 years, with an extra investment of Rs 7,20,000 for 3 years, the investor can generate an extra estimated corpus of Rs 2,08,87,139.
Why it happens
Compound growth of SIP investment makes the corpus grow significantly higher with 2 per cent extra returns for 3 more years