Power of Compounding in One-time Investment: Rs 2 lakh lump sum deposit for 30 years; Rs 10 lakh for 14 years, or Rs 20 lakh for 8 years? Which can build largest corpus?

Long-term Investment & Wealth Building: Most investors think that a large-amount investment will lead to a large corpus. Undoubtedly, there is a high possibility of it. But a small investment for a longer duration may also generate the same results or even better. It is possible because of the power of compounding, where you get return on return. The longer you stay in your investments, the larger corpus you may generate. Applying the same logic, do you know which of these investments may generate the highest return – a Rs 2 lakh investment for 30 years, Rs 10 lakh for 14 years, or Rs 20 lakh for 8 years? See calculations to know that! 

Rs 1,000 monthly SIP vs Rs 10,000 monthly SIP

Is there a possibility that a Rs 1,000 monthly SIP investment can create a corpus larger than the one created by a Rs 10,000 monthly SIP investment?

It is possible if the duration of a Rs 1,000 monthly investment is longer.

Let's take the example of a Rs 1,000 monthly SIP investment for 40 years vs a Rs 10,000 monthly SIP investment for 20 years and see that, at a 12 per cent annualised return, which can create a larger corpus.

In 40 years, the total investment at a Rs 1,000 monthly SIP investment will be Rs 4,80,000, estimated capital gains will be Rs 93,13,071 and the estimated value will be Rs 97,93,071.

In 20 years, the total investment at a Rs 10,000 monthly SIP investment will be Rs 24,00,000, estimated capital gains will be Rs 67,98,574 and the estimated corpus will be Rs 91,98,574.

Look at the total investment, estimated capital gains and the estimated corpus created in each case. 

Rs 2 lakh one-time investment vs Rs 20 lakh one-time investment 

Here, we will prove the same point – creating a large corpus from a small investment amount. 

The investment horizon in case of a Rs 2 lakh investment will be 40 years, and in the Rs 20 lakh investment case, it will be 19 years.

In each case, the annualised return will be 12 per cent. Let's see how much corpus they may create. 

From a Rs 2 lakh investment, estimated capital gains in 40 years will be Rs 1,84,10,194, and the estimated corpus will be Rs 1,86,10,194.

From a Rs 20 lakh investment, estimated capital gains in 19 years will be Rs 1,52,25,523, and the estimated corpus will be Rs 1,72,25,523.

In this case also, the investment, estimated capital gains and the estimated corpus tell the story of the power of compounding. 

Calculations for story

In our calculations, we will show which of the 3 investments – a Rs 2 lakh investment for 30 years, Rs 10 lakh for 14 years, or Rs 20 lakh for 8 years – may generate the highest corpus. The estimated annualised return in each case will be 12 per cent. 

Corpus from Rs 2 lakh one-time investment in 30 years

In 30 years, a Rs 2 lakh investment will give estimated capital gains of Rs 57,91,984, and the estimated corpus will be Rs 59,91,984.

Corpus from Rs 10 lakh one-time investment in 14 years

In 14 years, a Rs 10 lakh investment will give estimated capital gains of Rs 38,87,112, and the estimated corpus will be Rs 48,87,112.

Corpus from Rs 20 lakh one-time investment in 8 years

In 8 years, a Rs 20 lakh investment will give estimated capital gains of Rs 29,51,926, and the estimated corpus will be Rs 49,51,926.

Just looking at the capital gains generated in each, you can understand the power of compounding in investment growth.