Power of Compounding in One-time Investment: For most salaried-class individuals, an average 30-year investment window is available in the majority of cases. A person who joins a job at 25 years of age takes time to stabilise and build their career. Once they start getting a decent salary, they spend more on their lifestyle and sometimes to upgrade their skills. By 30, they are in a position where they can start their investment journey. But that’s the stage where most people make a mistake. They delay their investments, thinking that they will start it once they have a large pay package, and that’s the mistake that costs dearly.

They lost important years of compound growth of their investments.

These are the years, if used wisely, may take their investments to new heights.

Just a few years delay may leave them short of many lakhs of crores in their retirement corpus. Investment duration is powerful, which, if used effectively, can produce outstanding results for your investments.

A smaller investment can build a larger corpus compared to a larger investment done only for a few years.

Similarly, can a Rs 3,00,000 one-time investment in a mutual fund scheme generate a retirement corpus that can overtake a fund generated by a Rs 30,00,000 lump sum investment for a shorter duration?

See calculations to get an idea.

How time plays key role in investment growth

First, see the example of how a Rs 1 lakh investment in a mutual fund scheme can grow in 40 years at a 12 per cent annualised growth.

In 10 years, the estimated corpus will grow to Rs 3,10,585.

In 20 years, the estimated corpus will grow to Rs 9,64,629.

In 30 years, the estimated corpus will grow to Rs 29,95,992.

In 40 years, the estimated corpus will grow to Rs 93,05,097.

Just see the difference in the corpus between 20 and 40 years. It’s more than 10 times growth.

Rs 2 lakh vs Rs 20 lakh investment 

Here the first investment amount is just 1/10th of the second amount. But if Rs 2,00,000 grows for 35 years and Rs 20,00,000 for 14 years, both at a 12 per cent annualised return, the smaller amount can generate a higher corpus than the larger investment amount. Let’s see how.

A Rs 2,00,000 investment in 35 years will grow to an estimated corpus of Rs 1,05,59,924, where estimated capital gains will be Rs 1,03,59,924.

In contrast, a Rs 20,00,000 investment in 14 years will grow to an estimated corpus of Rs 97,74,225, where estimated capital gains will be Rs 77,74,225.

Just look at the estimated capital gains of both investments. 

A Rs 2 lakh investment’s growth in 35 years is far ahead of the investment growth of Rs 20 lakh in 14 years.

Why we get such contrasting results

These are not contrasting results. This is how investments grow because of compound growth, where they get return on return. The investment grows due to the snowball effect.

Rs 3,00,000 investment vs Rs 30,00,000 investment

Now apply the same logic to these 2 investments.

Here, we will make a Rs 3,00,000 investment for 40 years and a Rs 30,00,000 investment for 19 years. In both, we expect to get a 12 per cent annualised return. Let’s see how large corpuses we can get in both cases.

Corpus from Rs 3,00,000 investment in 40 years  

The estimated capital gains from a Rs 3,00,000 investment in 40 years will be Rs 2,76,15,291, and the estimated corpus will be Rs 2,79,15,291.

Corpus from Rs 30,00,000 investment in 19 years

The estimated capital gains from a Rs 3,00,000 investment in 40 years will be Rs 2,28,38,285, and the estimated corpus will be Rs 2,58,38,285.

The difference in the estimated capital gains generated is Rs 47,77,006. A Rs 3,00,000 investment is the winner hands down.

Cost of investment delay in career

Considering the examples given above, let’s see the example of the cost of delay in investment. 

A 30-year-old professional wants to start an investment of Rs 10,000 monthly SIP in a mutual fund, with an annual step up of 5 per cent. They want to do it till they turn 60.

See the results if they start at ages 30, 35, and 40.

If they start it at 30, the total investment will be Rs 79,72,662, estimated capital gains will be Rs 3,87,85,512 and the estimated corpus will be Rs 4,67,58,174. 

If they start it at 35, the total investment will be Rs 57,27,252, estimated capital gains will be Rs 1,91,01,233 and the estimated corpus will be Rs 2,48,28,485. 

If they start it at 40, the total investment will be Rs 39,67,914, estimated capital gains will be Rs 87,85,809 and the estimated corpus will be Rs 1,27,53,723. 

Look at the difference in capital gains with a delay of just 5 years.

Conclusion

The conclusion of all calculations shown above shows that it is always good to start an investment journey early. 

With a few lakhs of extra investment, the outcome can be outstanding. 

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