Power of Compounding in One-time Investment: Rs 3,00,000 lump sum deposit for 35 years vs Rs 9,00,000 for 25 years vs Rs 13,00,000 for 22 years, which can give highest return?
Power of One-time Investment: Can a smaller investment create a larger corpus than an investment 5 times larger than that? Can an Rs 1 lakh investment generate capital gains higher than the ones created from Rs 10 lakh? The power of compounding in long-term investment can create surprising results!
Power of One-time Investment: When we think about investment, we imagine creating a large corpus that can take care of many of our expenses. But at the same time, we also think in our subconscious mind that such a large corpus can be created only when we have a large investment amount. But the investment duration and the power of compounding can generate surprising results. A smaller investment, which is just 1/10th of another investment, can create a higher corpus and considerably higher capital gains, provided it gets more years for compounding. Likewise, which of the 3 investments – Rs 3 lakh one-time investment for 35 years vs Rs 9 lakh for 25 years vs Rs 13 lakh for 22 years – can create the highest corpus?
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(Disclaimer: This is not investment advice. Do your own due diligence or consult an expert for financial planning.)
Small vs large investment return comparison
Let's begin our conversation with two examples where you can see how a smaller investment can create a larger corpus because of the extra years of compounding.
Rs 2 lakh investment for 35 years vs Rs 12 lakh for 22 years and Rs 1 lakh investment for 40 years vs Rs 10 lakh investment for 19 years. We expect an annualised return of 12 per cent in both cases.
Rs 2 lakh investment for 35 years vs Rs 12 lakh for 22 years
At a 12 per cent annualised return in 35 years, a Rs 2 lakh investment will create estimated capital gains of Rs 1,03,59,924 and the estimated corpus of Rs 1,05,59,924.
A Rs 12 lakh investment in 22 years will generate estimated capital gains of Rs 1,33,20,372 and the estimated corpus of Rs 1,45,20,372.
Rs 2 lakh investment for 35 years vs Rs 12 lakh for 22 years
In this case, you can see that estimated capital gains generated from a Rs 2 lakh investment are Rs 29,60,448 more than the one created from a Rs 12 lakh investment.
Rs 1 lakh investment for 40 years vs Rs 10 lakh investment for 19 years
At 12 per cent annualised growth for 40 years, a Rs 1 lakh lump sum investment will create estimated capital gains of Rs 92,05,097 and the estimated corpus of Rs 93,05,097.
Rs 1 lakh investment for 40 years vs Rs 10 lakh investment for 19 years
A Rs 10 lakh investment in 19 years will generate estimated capital gains of Rs 76,12,762 and the estimated corpus of Rs 86,12,762.
Here also, you can see that estimated capital gains created from a Rs 1 lakh investment are Rs 15,92,335 more than the ones generated from a Rs 10 lakh investment.
Years to reach from Rs 5 lakh to Rs 5 crore corpus
The other advantage of staying for a long time in an investment can be that one can reach the estimated corpus with a smaller amount compared to the outcome. In this example, the investment is Rs 5 lakh, and the corpus is 100 times more. If a person gets a 12.5 per cent annualised return on their investment, let's see how many years one can achieve this financial goal in.
Years to reach from Rs 5 lakh to Rs 5 crore corpus
It can be achieved in approximately 40 years. Let's see how it will grow in 20 and 40 years.
In 20 years, estimated capital gains will be Rs 47,72,547, and the estimated corpus will be Rs 52,72,547.
In 40 years, estimated capital gains will be Rs 5,50,99,502, and the estimated corpus will be Rs 5,55,99,502.
Here, you can see how it is growing in the last 20 years.
Calculations for story
In our calculations, we will see which of the 3 investments – Rs 3 lakh one-time investment for 35 years vs Rs 9 lakh for 25 years vs Rs 13 lakh for 22 years – can create the highest corpus at a 12 per cent annualised return.
Corpus created from Rs 3 lakh one-time investment in 35 years
In 35 years, a Rs 3 lakh investment can produce estimated capital gains of Rs 1,55,39,886, and the estimated corpus will be Rs 1,58,39,886.
Corpus created from Rs 9 lakh one-time investment in 25 years
In 25 years, estimated capital gains generated from a Rs 9 lakh investment will be Rs 1,44,00,058, and the estimated corpus will be Rs 1,53,00,058.
Corpus created from Rs 13 lakh one-time investment in 22 years
In 22 years, a Rs 13 lakh lump sum investment can create estimated capital gains of Rs 1,44,30,403, and the estimated corpus will be Rs 1,57,30,403.
Conclusion
In the 3 examples, you can see estimated capital gains from a Rs 3 lakh investment are higher than the rest of the 2 investments. It's because the extra years of compounding have grown faster with time