Power of Compounding: In how much time can SIP investment of Rs 7,000/month generate Rs 2,15,66,812 corpus?

Power of Compounding: Compounding is a financial principle where people earn capital gain not only on the principle amount but also on the capital gain earned earlier. Basically, it creates a snowball effect that helps your investments grow exponentially over time.

It is used in mutual fund SIPs where people earn interest on interest. SIP is a long-term market-linked investment where investors can invest small amounts periodically.

Key features of SIP

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• SIP is a market-linked investment scheme and hence carries a higher level of risk.
• Market-linked long-term investment option.
• Allows investors to invest a fixed amount in mutual funds.
• No lock-in period, investor gets to choose

But how does it work? Let's understand with an example -

Suppose you are investing Rs 17,000 in a SIP each month, assuming an average return rate of 12 per cent. Let's suppose your target is to generate over Rs 2 crore corpus in the long term. Now, can you guess how much time it will take? Let's calculate -

Targeting Rs 2 crore corpus: How long will it take to generate the amount with a monthly SIP of Rs 7,000?

With a monthly investment of Rs 7,000, one needs to invest in SIP for at least 30 years to create a corpus of around Rs 2.15 crore, according to the calculations.

Targeting Rs 2 crore corpus with Rs 7,000 monthly SIP: Calculating total investment in 30 years

With a Rs 7,000 monthly SIP, one will invest a total of Rs 25,20,000 in 30 years.

Targeting Rs 2 crore corpus with Rs 7,000 monthly SIP: Calculating average capital gain

A total of Rs 1,90,46,812 corpus will be received in terms of capital gain.

Note: The above mentioned is an expected return, and the actual amount may vary depending on the market conditions.

Targeting Rs 2 crore corpus with Rs 7,000 monthly SIP: Final Corpus Received

At the end of 30 years, the person will get a total of Rs 2,15,66,812. This includes the principal investment and capital gain.

Full Calculation: You may become the owner of over Rs 2.15 crore after 30 years

• Total Investment Amount: Rs 25,20,000
• Capital Gains: Rs 1,90,46,812
• Total Approx. Return: Rs 2,15,66,812

(Disclaimer: Our calculations are projections and not investment advice. Do your own due diligence or consult an expert for financial planning.)

FAQs related to the article

Q1 What is SIP?

A Systematic Investment Plan is a long-term investment scheme that is linked to the stock market. It allows investors to invest a fixed amount in mutual funds to generate substantial wealth.

Q2 Is there any lock-in period in a SIP mutual fund?

No, there is no lock-in period; the investors can choose as per their choice.

Q3 What is the minimum amount to invest in an SIP?

One can start investing in SIP with as low as Rs 500 per month.

Q4 What is the maximum amount to invest in an SIP?

There is no maximum limit for investing.

Q5 How much interest is earned on SIP?

Since SIPs are market-linked investments, returns are not fixed and can fluctuate.

Q6 Is there any risk involved in SIP?

SIP is a market-linked investment scheme and hence carries a higher level of risk.