Power of Compounding: Can Rs 12,000 monthly SIP investment generate Rs 7 crore corpus for 25-year-old? See details to know
Retirement Planning via SIP: A monthly SIP investment of Rs 12,000 can generate a retirement corpus worth over Rs 7,00,00,000 if one keeps investing a monthly amount consistently.
Power of Compounding via SIP: Compound growth can take one's retirement corpus to the next level. For someone who hasn't seen examples of how compound returns can grow investments faster as they get older, or for someone who doesn't know how small investments can create a big impact in the long run, the possibility of creating a gargantuan corpus from a minuscule amount invested for the long term may appear to be unrealistic. But they can multiply their wealth to a large extent if they stay in their investments for a long time. Even a Rs 12,000 monthly SIP investment can create a fund over Rs 7,00,00,000, which can help you accomplish many of your investment goals. Know how large a retirement corpus you may generate from an Rs 12,000 monthly SIP investment if you start investing at the ages of 25, 32, or 40 years.
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(Disclaimer: This is not investment advice. Do your lown due diligrence or consult an expert for financial planning.)
How small investments can do wonders because of compounding
Let's take the example of a Rs 2,000 monthly SIP investment for 20, 30, and 40 years at an annualised rate of return of 12 per cent.
In 20 years, the estimated corpus will be Rs 19,98,296 on an investment of Rs 4,80,000.
Power of Rs 2,000 monthly SIP in 30 years
In 30 years, it will grow to an estimated Rs 70,59,828 on an investment of Rs 7,20,000.
Power of Rs 2,000 monthly SIP in 40 years
In 40 years, the estimated corpus will be Rs 2,37,64,840 on an investment of Rs 9,60,000.
So, here, you can see that from 20 years to 40 years, the estimated corpus grows by Rs 2,17,66,544 on an extra investment of Rs 4,80,000. It's because compounding works faster as the investment gets older.
Power of extra return
Let's take this example to another level. What if a Rs 2,000 monthly SIP investment grows at a 20 per cent annualised return? What will the corpus be in 20, 30, and 40 years?
In 20 years, the estimated corpus will be Rs 63,22,959 on an investment of Rs 4,80,000.
Power of extra return
In 30 years, the estimated corpus will grow to Rs 4,67,21,604 on an investment of Rs 7,20,000.
In 40 years, the estimated corpus will balloon to Rs 34,03,49,255.
It shows that the estimated corpus from 20 years to 40 years grew by Rs 33,40,26,296 with an extra investment of Rs 4,80,000.
It shows compounding will be more evident on a higher annualised return.
Can Rs 20,000 monthly SIP create Rs 340 crore corpus?
Going by the same logic, any wonder what Rs 20,000 monthly at 20 per cent annualised growth can give in 40 years?
Rs 3,40,34,92,551 at an investment of Rs 96,00,000. Yes, you read it right!
Story calculations
For our story, we will take the example of Rs 12,000 monthly investment persons who start investment at 25, 32, and 40 years of age. Each will get a 12 per cent annualised return on their investment. They will do their investment till 60 years of age. So, the investment horizon for a 25-year-old will be 35 years; for a 32-year-old, it will be 28 years; for a 40-year-old, it will be 20 years.
How large corpus can 25-year-old create with Rs 12,000 monthly SIP investment?
In 35 years, a 25-year-old will invest a total of Rs 50,40,000 till 60 years of age.
In that period, they will get estimated capital gains of Rs 7,29,03,229 and the estimated corpus of Rs 7,79,43,229.
How large corpus can 32-year-old create with Rs 12,000 monthly investment?
In 28 years, a 32-year-old will invest a total of Rs 40,32,000.
During that time frame, they will get estimated capital gains of Rs 2,90,71,016 and the estimated corpus of Rs 3,31,03,016.
How large corpus can 40-year-old get with Rs 12,000 monthly SIP investment?
In 20 years, a 40-year-old will invest a total of Rs 28,80,000 till 60 years of age.
During that time frame, they will get estimated capital gains of Rs 91,09,775 and the estimated corpus of Rs 1,19,89,775.
Conclusion
Thus, one can see that a 40-year-old will generate an estimated Rs 1,19,89,775 on a total investment of Rs 28,80,000.
On the other hand, a 25-year-old will generate an estimated Rs 7,79,43,229 on an investment of Rs 50,40,000.
Conclusion
On an extra investment of Rs 21,60,000, the extra estimated generated corpus is Rs 6,59,53,454.
It happened because the 25-year-old gets 15 years of extra compounding compared to the 40-year-old.