The power of compounding plays a major role in investment, be it any type, such as mutual funds, fixed deposits, or others. The compounding helps your money grow in the long run. The secret to benefiting from the power of compounding is an early and consistent investment strategy. It has the power to turn even a small amount of Rs 1,000 into a huge corpus of Rs 90 lakh. Well, on that note, let’s find out how soon you can generate a corpus of over Rs 90 lakh with just Rs 1,000, Rs 3,000, and Rs 5,000 monthly investments.
What is a systematic investment plan (SIP)?
Let’s quickly understand what is SIP. It stands for a systematic investment plan, in which you can plan to invest a fixed amount in mutual fund(s). You can invest either daily, weekly, monthly, quarterly, or yearly, depending on your choice.
What is compounding?
As discussed above, the power of compounding means that when you invest your money, in return you can earn more money not only on the amount you initially invested but also on the profits it makes over time.
Why should you choose SIP?
Choosing a systematic investment plan is up to your choice. But if we talk of its benefits, SIP is beginner-friendly. You can start investing with a small amount of Rs 100. It is also convenient, with automated deductions you don’t have to worry about missing out on investment.
Why investing early is beneficial?
To get maximum returns from investment in the long run one should start investing early. Let’s understand it through an example.
Example of early investment
Investor A: Starts investing Rs 5,000/month at age 25 and continues till age 45 (20 years).
Total Investment: Rs 12,00,000
Maturity Amount (at 12 per cent annual return): Estimated Rs 45,99,287
Investor B: Starts investing Rs 5,000/month at age 35 and continues till age 45 (10 years).
Total Investment: Rs 12,00,000
Maturity Amount (at 12 per cent annual return): Estimated Rs 11,20,179
By starting 10 years earlier, Investor A earns Rs 34,79,108 more, showcasing the power of compounding.
SIP calculation conditions
- Target corpus: over Rs 90 lakh
- Monthly investment: Rs 1,000, Rs 3,000, Rs 5,000
- Annualised return: 12 per cent
How long it will take to build over Rs 90 lakh with Rs 1,000 monthly SIP?
It will take approximately 40 years to generate over Rs 90 lakh.
How long it will take to generate over Rs 90 lakh with Rs 3,000 monthly SIP?
It will take approximately 30 years to generate over Rs 90 lakh.
How long it will take to achieve over Rs 90 lakh with Rs 5,000 monthly SIP?
It will take approximately 26 years to generate over Rs 90 lakh.
How much can Rs 1,000 monthly SIP build in 40 years?
The investment amount will be Rs 4,80,000, the capital gains will be Rs 93,13,071, and the estimated retirement corpus will be Rs 97,93,071.
How much can Rs 3,000 monthly SIP build in 30 years?
The investment amount will be Rs 10,80,000, the capital gains will be Rs 81,62,920, and the estimated retirement corpus will be Rs 92,42,920.
How much can Rs 5,000 monthly SIP build in 26 years?
The investment amount will be Rs 15,60,000, the capital gains will be Rs 80,36,189, and the estimated retirement corpus will be Rs 95,96,189.
(Disclaimer: Our calculations are projections and not investment advice. Do your due diligence or consult an expert for financial planning)
