Power of Compounding in One-time Investment: Rs 1,00,000 investment for 40 years vs Rs 3,00,000 for 30 years vs Rs 5,00,000 for 25 years; which can generate highest return?

In this example, see how a Rs 1 lakh one-time investment can generate a larger corpus than the fund created from a Rs 10 lakh investment.  If one investor invests Rs 1 lakh for 36 years and another investor invests Rs 10 lakh for 15 years, Rs 1 lakh can create a greater corpus than the one from Rs 10 lakh.

In 36 years, estimated capital gains from a Rs 1 lakh investment will be Rs 58,13,557, and the estimated corpus will be Rs 59,13,557. In 15 years, estimated capital gains from a Rs 10 lakh investment will be Rs 44,73,566, and the estimated corpus will be Rs 54,73,566. Here, a Rs 1 lakh investment is creating capital gains of nearly Rs 14 lakh extra because of a long investment horizon.

Here, A starts a Rs 3,000 monthly SIP investment, and B starts a Rs 30,000 monthly investment for the long term. A wants to invest for 40 years and B for 20 years. See how, with an investment horizon twice that of B, A can create a larger corpus. In 40 years, A will invest Rs 14,40,000, their estimated capital gains will be Rs 2,79,39,213, and the estimated corpus will be Rs 2,93,79,213. 

In 20 years, B will invest Rs 72,00,000, their estimated capital gains will be Rs 2,03,95,721, and the estimated corpus will be Rs 2,75,95,721.  Here, 2 striking things are- A's total investment is Rs 57,60,000 less than B's, while the estimated corpus generated is higher by Rs 75,43,492.

Now, in the third condition, if one wants to create a Rs 5 crore corpus, see how they can create it with a Rs 6,000 monthly SIP investment with a lesser amount compared to how they can create it with a monthly SIP investment of Rs 60,000.

If they start with a Rs 5,000 monthly SIP investment, it can be created in an estimated 39 years. Their total investment will be Rs 28,08,000, estimated capital gains will be Rs 4,95,86,488 and the estimated corpus will be Rs 5,23,94,488.

Here, we will calculate which of the 3 amounts can create the largest corpus: a Rs 1,00,000 one-time investment for 40 years vs Rs 3,00,000 for 30 years vs Rs 5,00,000 for 25 years. The annualised return in each case will be 12 per cent.

In 40 years, a Rs 1 lakh one-time investment will generate estimated capital gains of Rs 92,05,097 and the estimated corpus of Rs 93,05,097.

In 30 years, a Rs 3 lakh one-time investment will generate estimated capital gains of Rs 86,87,977, and the estimated corpus of Rs 89,87,977.

In 24 years, a Rs 5 lakh one-time investment will generate estimated capital gains of Rs 80,00,032 and the estimated corpus of Rs 85,00,032.

In the examples above you can see that a Rs 1 lakh investment is generating extra capital gains of Rs 12,05,065 compared to gains generated from a Rs 5 lakh investment when the investment horizon is 15 years longer. This growth takes place because of the compound growth of investments.  By using the same logic, one can generate a larger corpus or may achieve it with a little investment if they stay in their investment for a long time. 

Let's assume you want to create a corpus that is 100 times more than the investment amount. Your expectations of investment return is 12 per cent. Let's see in how many years it is possible. If you have Rs 10 lakh for investing and want to create a Rs 10 crore corpus, let's see in how many years you may achieve it-  It can be achieved an estimated 41 years.

In 41 years, estimated capital gains will be Rs 10,32,17,086.89 and the estimated corpus will be Rs 10,42,17,086.89. But if you get a 13 per cent annualised return, the same can be achieved in an estimated 38 years. In 38 years, estimated capital gains will be Rs 10,29,87,431.78 and the estimated corpus will be Rs 10,39,87,431.78.