Power of SIP: Most of you must have heard of a Systematic Investment Plan, popularly known as SIP. For those who are unaware, a SIP is a disciplined investment method that allows individuals to invest a fixed, small amount regularly (weekly, monthly, or quarterly) into mutual funds. It automates investments, reduces market risk through rupee cost averaging, and leverages compounding to build long-term wealth.
The actual catch here is the magic of compounding. In this article, you will learn how the power of compounding is beneficial to those who are consistent in their investment strategy. Generally, the compounding effect is seen at work when investments are for a longer period of time. It is called the snowball effect.
It doesn’t matter if you start with a small amount; the time frame is what truly matters in compounding. Therefore, in this article, we consider a smaller amount invested over a longer period and a larger amount invested over a shorter period.
Now, let’s find out which amount will accumulate more at the end of the investment period.
- Target corpus: ?
- Investment amount: Rs 12,000 monthly SIP
- Investment period: 20 years
- Annualised return: 12 per cent
Power of SIP: How much can Rs 12,000 monthly SIP build in 10 years?
In 10 years, the investment amount will be Rs 14,40,000, the estimated return in 10 years could be Rs 13,48,069, and the estimated corpus in 10 years could be Rs 27,88,069.
Power of SIP: How much can Rs 12,000 monthly SIP build in 20 years?
In 20 years, the investment amount will be Rs 28,80,000, the estimated return in 20 years could be Rs 91,09,775, and the estimated corpus in 20 years could be Rs 1,19,89,775.
Power of SIP: Rs 20000 monthly investment for 10 years
- Target corpus: ?
- Investment amount: Rs 20,000 monthly SIP
- Investment period: 10 years
- Annualised return: 12 per cent
Power of SIP: How much can Rs 20,000 monthly SIP build in 5 years?
In 5 years, the investment amount will be Rs 12,00,000, the estimated return in 5 years could be Rs 4,49,727, and the estimated corpus in 5 years could be Rs 16,49,727.
Power of SIP: How much can Rs 20,000 monthly SIP build in 10 years?
In 10 years, the investment amount will be Rs 24,00,000, the estimated return in 10 years could be Rs 22,46,782, and the estimated corpus in 10 years could be Rs 46,46,782.
Rs 12k monthly investment for 20 years vs Rs 20k monthly investment for 10 years
Thus, it is quite clear from the above calculations that Rs 12,000 monthly investment for 20 years was able to generate a higher corpus than Rs 20,000 monthly investment for 10 years.
(Disclaimer: The above article is meant for informational purposes only, and should not be considered as any investment advice. ET NOW DIGITAL suggests its readers/audience to consult their financial advisors before making any money related decisions.)
