Power of Compounding: How Rs 10,000 monthly SIP investment can help create Rs 2 crore, Rs 3 crore, and Rs 4 crore corpuses; know here

Compound Returns Benefits: Rs 10,000 monthly SIP investment, if done for a long time, can create a corpus worth crores. The key is to keep getting average returns and maintaining consistency. 

Shaghil Bilali | Dec 06, 2024, 01:00 AM IST

Compound Returns Benefits: Completing financial goals is necessary for the financial freedom of an individual. Such a freedom provides mental peace and provides one a sense of achievement. An individual depends on their income to achieve their financial goal. No matter how small the amount one earns daily, monthly, or yearly, they need to depend on the same to create a corpus that can help them achieve financial goals. A person can start with a small amount and gradually move to a higher investment amount to accomplish their goals faster. Or, they can fix an amount and invest it religiously till their financial targets are not met. If they start investing early, they get more years for compounding of their investments compared to an investor who begins their investment journey late. A monthly systematic investment plan (SIP) of Rs 10,000 can be sufficient to create a corpus as large as Rs 4 crore. Know how compounding works and how one can create corpuses worth Rs 2 crore, Rs 3 crore, and Rs 4 crore from Rs 10,000 monthly SIP investment.    
Photos: Unsplash/Pixabay
(Disclaimer: This is not investment advice. Do your own due diligence or consult an expert for financial planning.)

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What is compounding?

What is compounding?

Compounding is the process of getting return on return. E.g., a person invests Rs 1 lakh in a year and gets 12 per cent annnualised return on that, their amount at the end of the year will be Rs 1.12 lakh. 

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What is compounding?

What is compounding?

Because of compounding, in the second year, they will get growth not on the principal amount of Rs 1 lakh, but on Rs 1.12 lakh. After every year, this amount grows, and there comes a time when the growth of just 1 year overtakes the principal amount.

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How it happens

How it happens

If a person invests Rs 5 lakh lump sum amount in a mutual fund where they are getting a 12 per cent annualised return, after 19 years, their estimated corpus will be Rs 43,06,380. After 20 years, it will grow to estimated Rs 48,23,146. It means in 1 year, the estimated growth is Rs 5,16,766, which is more than the principal amount.  

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How time plays role in compounding?

How time plays role in compounding?

Let's take the example of Rs 3,000 monthly SIP investment, where the annualised return is 12 per cent. In 20 years, the estimated corpus will be Rs 29,97,444 on investment of Rs 7,20,000.

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How time plays role in compounding?

How time plays role in compounding?

In 30 years, it will reach an estimated Rs 1,05,89,741 on investment of Rs 10,80,000. In 40 years, it will reach Rs 3,56,47,261 on investment of Rs 3,56,47,261. Any guess for 50 years, if the investor has that much time and patience? In 50 years, the estimated corpus will be Rs 11,83,46,769.29 on investment of just Rs 18,00,000.

 

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Years to reach Rs 2 crore corpus from Rs 10,000 monthly SIP?

Years to reach Rs 2 crore corpus from Rs 10,000 monthly SIP?

For our calculations, we will take 12 per cent and 14 per cent annualised returns as growth rates and calculate investment durations based on them. 

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Years to reach Rs 2 crore corpus from Rs 10,000 monthly SIP? (At 12% growth)

Years to reach Rs 2 crore corpus from Rs 10,000 monthly SIP? (At 12% growth)

It will take estimated 26 years to reach the Rs 2 crore corpus target.
The estimated corpus in that period will be Rs 2,15,11,120.

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Years to reach Rs 2 crore corpus from Rs 10,000 monthly SIP? (At 14% growth)

Years to reach Rs 2 crore corpus from Rs 10,000 monthly SIP? (At 14% growth)

The estimated years to reach the Rs 2 crore corpus at 14 per cent annualised growth will be 23 years.
During that period, one can generate an estimated corpus of Rs 2,04,35,049.

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Years to reach Rs 3 crore corpus from Rs 10,000 monthly SIP? (At 12% growth)

Years to reach Rs 3 crore corpus from Rs 10,000 monthly SIP? (At 12% growth)

A Rs 3 crore corpus target can be achieved in estimated 29 years.
The estimated corpus generated during that period will be Rs 3,12,12,516.

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Years to reach Rs 3 crore corpus from Rs 10,000 monthly SIP? (At 14% growth)

Years to reach Rs 3 crore corpus from Rs 10,000 monthly SIP? (At 14% growth)

One can achieve the Rs 3 crore corpus target in estimated period of 26 years.
During that period, the estimated corpus generated will be Rs 3,14,75,250.

 

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Years to reach Rs 4 crore corpus from Rs 10,000 monthly SIP? (At 12% growth)

Years to reach Rs 4 crore corpus from Rs 10,000 monthly SIP? (At 12% growth)

The estimated time to reach the Rs 4 crore corpus will be a little over 31 years.
In 31 years, the estimated corpus created will be Rs 3,99,04,045.

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Years to reach Rs 4 crore corpus from Rs 10,000 monthly SIP? (At 14% growth)

Years to reach Rs 4 crore corpus from Rs 10,000 monthly SIP? (At 14% growth)

A Rs 4 crore target can be achieved in estimated 28 years.
During that period, one can create estimated corpus of Rs 4,18,56,741.

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How is compounding playing its role?

How is compounding playing its role?

In all the above-mentioned examples, you can see that it takes time to achieve a Rs 2 crore corpus target, but the journey from Rs 2 to Rs 3 crore is much faster. The journey from Rs 3 crore to Rs 4 crore is even much quicker than the journey from Rs 2 crore to Rs 3 crore.

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