One-time Investment for Building Wealth: A one-time (lump sum) investment in mutual funds may play a key role in building wealth if one uses it effectively for long-term investment. One may generate a corpus that may be multiple times the principal investment if they let their corpus grow for a long term. Investments done for the long term may help them achieve many financial goals. The power of compounding can make it happen. Compounding works when one lets their investment grow for years.

The results can be surprising.

A small amount of investment can help you build a larger corpus compared to a large amount of investment.

Let’s understand it with a couple of examples and know which of the 3 investments – Rs 1 lakh for 25 years, Rs 5 lakh for 10 years, or Rs 10 lakh for 5 years – can create the largest corpus.

Power of compounding for long-term investment 

The impact of compound growth on investment is visible only in a couple of years, but its outstanding results can be realised in the long run.

Let’s understand it with an example.

When we make a one-time investment of Rs 2,00,000 in a mutual fund where the annualised return is 12 per cent. Let’s see how it will grow in 10, 20, and 30 years.

In 10 years, estimated capital gains will be Rs 4,21,170, and the estimated corpus will be Rs 6,21,170.

In 20 years, estimated capital gains will be Rs 17,29,259, and the estimated corpus will be Rs 19,29,259.

In 30 years, estimated capital gains will be Rs 57,91,984, and the estimated corpus will be Rs 59,91,984.

Here, you can see that the amount is the same, but it is growing faster with time. Hence, the compounding can be more effective in long phases. 

Larger corpus from smaller investment

Let’s see the example of a Rs 1,50,000 one-time investment for 30 years and a Rs 15,00,000 lump sum investment for 9 years.

The 1st amount is 1/10th of the second. We are expecting a 12 per cent annualised growth in both of them.

In 30 years, a Rs 1,50,000 one-time investment can generate estimated capital gains of Rs 4,343,988 and an  estimated value of Rs 44,93,988.

In 9 years, a Rs 15,00,000 one-time investment can generate estimated capital gains of Rs 26,59,618, and an estimated value of Rs 41,59,618.

Calculation for story

We will calculate the estimated corpus generated from Rs 1 lakh investment for 25 years, Rs 5 lakh for 10 years, and Rs 10 lakh for 5 years at a 12 per cent annualised return rate.

We will see which of them can generate the highest corpus. 

Corpus from Rs 1 lakh one-time investment in 25 years

In 25 years, estimated capital gains will be Rs 16,00,006 and the estimated corpus will be Rs 17,00,006.

Corpus from Rs 5 lakh one-time investment in 10 years

In 10 years, estimated capital gains will be Rs 10,52,924 and the estimated corpus will be Rs 15,52,924.

Corpus from Rs 10 lakh one-time investment in 5 years

In 5 years, estimated capital gains will be Rs 7,62,342 and the estimated corpus will be Rs 17,62,342.

In the examples above you can see that a Rs 1 lakh investment is generating a larger corpus than a Rs 5 lakh investment because of 15 years of extra compounding.

In the 1st and 3rd examples, you can see that despite being 1/10th of Rs 10 akh, a Rs 1 lakh investment is generating nearly the same corpus. It happens because of the power of compounding.

(Disclaimer: This is not investment advice. Do your own due diligence or consult an expert for financial planning.)