Power of Compounding: From 20-50 years of age, see how every 5-year delay in starting your Rs 11,000 monthly SIP changes the way your wealth grows till age 55; learn with examples
If slow and steady truly wins the race, how soon should you start your investments? Many financial planners have time and again emphasised the importance of starting to invest early in life to make the most of compounding, which is nothing but reinvested returns to generate additional earnings over time. Now, if you were ready to spare Rs 11,000 every month till you reach an important financial goal in life, say early retirement at 55, can you guess the actual cost of every 5 years of delayed investment?
Does slow and steady really win the race? Financial planners often emphasise the importance of investing early to maximise compounding benefits. Compounding reinvests returns to generate additional earnings over time. Now, consider this: Investing Rs 11,000 monthly in a mutual fund via SIP, aiming for early retirement at 55, how much would delaying your investment cost you every 5 years? This writeup provides estimates on SIP investments for 5-35 years, helping you plan your journey to 55 at a modest annualised return of 12 per cent.
Power of Compounding | Starting at age 20
Assuming you get an annualised return of 12 per cent, an SIP of Rs 11,000 per month will enable you to invest a sum of Rs 46.2 lakh in 35 years, leading to returns of Rs 6.68 crore hence creating a corpus of approximately Rs 7.1 crore, calculations show.
Power of Compounding | Now, can you guess the outcome in 30 years instead of 35?
In this example, let’s say you start your investment at 25, instead of 20 years of age. You will end up investing a total Rs 39.6 lakh over a period of 30 years (from age 25 to age 55), which is Rs 6.6 lakh less than the previous example.
Now, not only you will be investing a smaller amount of money, you will also be removing 5 years of additional compounding, as in the previous example.
This way, you will reach a total corpus of approximately Rs 3.88 crore including estimated returns of about Rs 3.49 crore, as per calculations.
Power of Compounding | Take out 5 more years out of the picture and notice the difference
In this example, you start your Rs 11,000 monthly SIP at age 30, which will give you 25 years of investment and compounding.
Can you guess your estimated returns in this case?
Your total investment of Rs 33 lakh over the 25-year period will earn you estimated returns of Rs 1.76 crore, leaving you with a total corpus of Rs 2.09 crore at age 55, calculations show.
Power of Compounding | Notice the pattern?
If you remember the first example, you may have already inferred that no matter how disciplined you may be as an investor, doing the exact same over a smaller span of time affects your returns significantly.
Power of Compounding | What will happen when you start at age 35?
A monthly SIP of Rs 11,000 for 20 years (from age 35 to age 55) will have you invest Rs 26.4 lakh, leading to a corpus of approximately Rs 1.1 crore including estimated returns of Rs 83.51 lakh, calculations show.
Power of Compounding | Guess the outcome when you start at age 40
If you start at age 40, the same monthly SIP of Rs 11,000 will help you invest Rs 19.8 lakh into the mutual fund scheme of your choice, leading to a corpus of Rs 55.5 lakh by age 55 given the expected annualised return of 12 per cent, calculations show.
The corpus of Rs 55.5 lakh means you will get estimated returns of about Rs 35.7 lakh over the 15-year period.
Power of Compounding | Starting at age 45 will leave you with only 10 years of investment and...
Starting your Rs 11,000 monthly SIP at age 45 will help you invest a sum of Rs 13.2 lakh in the 10 years before you turn 55.
In this example, assuming the annualised return of 12 per cent, you will end up with a corpus of about Rs 25.56 lakh once you turn 55, calculations show.
Power of Compounding | Now, what if you start at age 50?
With only 5 years left before your planned retirement, the exact same monthly investment of Rs 11,000 will help you build a corpus of approximately Rs 9.07 lakh including estimated returns of Rs 2.47 lakh with a total investment of Rs 6.6 lakh, as per calculations.
Power of Compounding | Now, here's a recap
