Power of Compounding in One-time Investment: Rs 2,00,000 investment for 35 years vs Rs 10,00,000 for 20 years; which can create larger corpus?

Since we are talking about long-term investment, let's see if an investment can generate a larger corpus compared to what a larger investment amount can generate. Here, we are investing Rs 1 lakh for 40 years and Rs 10 lakh for 19 years. Both are expecting a 12 per cent annualised return.

 

A Rs 1 lakh investment in 40 years will give estimated capital gains of Rs 92,05,097, and the estimated corpus of Rs 93,05,097. On the other hand, a Rs 10 lakh investment in 19 years will give estimated capital gains of Rs 76,12,762 and the estimated corpus of Rs 86,12,762. The capital gains generated from a Rs 1 lakh investment are much higher than those generated from the Rs 10 lakh investment.

A Rs 1 lakh investment in 40 years will give estimated capital gains of Rs 92,05,097, and the estimated corpus of Rs 93,05,097. On the other hand, a Rs 10 lakh investment in 19 years will give estimated capital gains of Rs 76,12,762 and the estimated corpus of Rs 86,12,762. The capital gains generated from a Rs 1 lakh investment are much higher than those generated from the Rs 10 lakh investment.

Let's see one more example where A and B have Rs 6 lakh each and they want to invest it for 35 and 30 years, respectively. Both expect a 12 per cent annualised return from their respective investments. Let's see the corpus they can generate in 35 and 30 years. In 35 years, A's investment will give estimated capital gains of Rs 3,10,79,772 and the estimated corpus of Rs 3,16,79,772.

In 30 years, B's investment will give estimated capital gains of Rs 1,73,75,953 and the estimated corpus of Rs 1,79,75,953. Look at what impact compound growth can make on investment.

If one uses the power of compounding to its good effect, one may generate a sizeable corpus even if their investment amount is comparatively small.  If one is aiming for a Rs 5 crore corpus, let's see how much one-time investment is required if one wants to achieve that financial goal in 25, 30, and 35 years.

In 25 years, one may achieve it with an estimated investment of Rs 29,41,200.  In 30 years, one may achieve it with an estimated investment of Rs 16,69,000. In 35 years, one may achieve it with an estimated investment of Rs 9,46,980.

Now, see how a Rs 15,000 monthly SIP investment can grow in 25, 30, and 35 years. In 25 years, the total investment will be Rs 45,00,000, estimated capital gains will be Rs 2,10,33,099 and the estimated corpus will be Rs 2,55,33,099. In 30 years, the total investment will be Rs 54,00,000, estimated capital gains will be Rs 4,08,14,598 and the estimated corpus will be Rs 4,62,14,598.

In 35 years, the total investment will be Rs 63,00,000, estimated capital gains will be Rs 7,63,62,467 and the estimated corpus will be Rs 8,26,62,467. Here, you can see the difference in the corpus with just a few lakhs of extra investment.

Every example highlights the importance of long-term investment. In the one-time investment for retirement example, you can see that if one delays the investment by 10 years, they may require 3 times the higher amount.  

In the SIP investment example, you can see that if the investor sticks to their investment for just 10 more years (35 instead of 25), they may generate a 3 times higher corpus.

Let's analyse which of these 2 investments can give a higher corpus – a Rs 2,00,000 investment for 35 years vs Rs 10,00,000 for 20 years.

 

In 35 years, a Rs 2,00,000 investment will give estimated capital gains of Rs 1,03,59,924 and the estimated corpus of Rs 1,05,59,924.

In 20 years, a Rs 10,00,000 investment will give estimated capital gains of Rs 86,46,293 and the estimated corpus of Rs 96,46,293.