Power of Rs 6,00,000 One-time Investment in Mutual Funds: How you may generate Rs 2,26,00,000 corpus from Rs 6 lakh lump sum deposit by 55 years of age

Let's understand it from an example. A person starts a Rs 100 daily systematic investment plan (SIP) in a mutual fund, where they are expecting a 12 per cent annualised return from their investment. They don't want to increase their investment amount lifelong. Let's see what kind of results they may achieve in the long run. In 10 years, the total investment will be Rs 3,65,000, estimated capital gains will be Rs 3,40,735, and the estimated corpus will be Rs 7,05,735. In 20 years, the total investment will be Rs 7,30,000, estimated capital gains will be Rs 23,18,396, and the estimated corpus will be Rs 30,48,396.

In 30 years, the total investment will be Rs 10,95,000, estimated capital gains will be Rs 97,29,770, and the estimated corpus will be Rs 1,08,24,770. In 40 years, the total investment will be Rs 14,60,000, estimated capital gains will be Rs 3,51,78,149, and the estimated corpus will be Rs 3,66,38,149. Just look at the corpus created in the first 20 years and the second 20 years. The corpus created in the second 20-year period is 10 times larger than the corpus created in the first phase of 20 years.

Now understand the same phenomenon from the example of a one-time investment in a mutual fund scheme. We are investing Rs 2,00,000 in a mutual fund scheme where the expected annualised growth is 12 per cent. Let's see the corpus created in different stages of life.  In 10 years, estimated capital gains will be Rs 4,21,170, and the estimated corpus will be Rs 6,21,170. In 20 years, estimated capital gains will be Rs 17,29,259, and the estimated corpus will be Rs 19,29,259.

In 30 years, estimated capital gains will be Rs 57,91,984, and the estimated corpus will be Rs 59,91,984. In 40 years, estimated capital gains will be Rs 1,84,10,194, and the estimated corpus will be Rs 1,86,10,194. In this example, look at the growth in the first 20 years and the second 20 years. There is no match.

In the 2 examples given above, the exponential growth with time is possible because of the power of compounding. The compound growth of an investment is more visible in the long term. The higher the investment period, the faster the corpus may grow. Because of this, a small investment for a long term can easily create a larger corpus compared to a high-amount, low-duration investment period. Let's see two examples of this change.

In this example, you can see that the first monthly SIP investment amount is 1/10th of the second. At a 12 per cent annualised growth of the investment, let's see which can create a larger corpus. At a Rs 2,000 monthly SIP investment, the total investment in 40 years will be Rs 9,60,000, estimated capital gains will be Rs 1,86,26,142, and the estimated corpus will be Rs 1,95,86,142.

At a Rs 20,000 monthly SIP investment, the total investment in 20 years will be Rs 48,00,000, estimated capital gains will be Rs 1,35,97,147, and the estimated corpus will be Rs 1,83,97,147. Now look at the total investment and the corpus created in each case. A Rs 2,000 monthly SIP investment is a clear winner. 

Here also, you can see that the first investment amount is just 1/10th of the second amount. At a 12 per cent annualised return, let's see how much corpus they may create in 35 years and 14 years, respectively.  From a Rs 1 lakh investment in 35 years, estimated capital gains will be Rs 51,79,962, and the estimated corpus will be Rs 52,79,962.

From a Rs 10 lakh investment in 14 years, estimated capital gains will be Rs 38,87,112, and the estimated corpus will be Rs 48,87,112. The one-time investment example also clearly illustrates the power of compounding. 

Here, we will see the possibility of creating a nearly Rs 2,26,00,000 retirement corpus from a Rs 6,00,000 one-time investment. Also, can it be created by 55 years of age? We will calculate it at a 12 per cent annualised return and will show it in different phases of investment growth.

In 10 years, estimated capital gains will be Rs 12,63,509, and the estimated corpus will be Rs 18,63,509.

In 20 years, estimated capital gains will be Rs 51,87,776, and the estimated corpus will be Rs 57,87,776.

In 30 years, estimated capital gains will be Rs 1,73,75,953, and the estimated corpus will be Rs 1,79,75,953.

In 32 years, estimated capital gains will be Rs 2,19,49,036, and the estimated corpus will be Rs 2,25,49,036.

Here, we can see that it may take approximately 32 years to create a nearly Rs 2,25,49,036 retirement corpus from Rs 6,00,000 one-time investment. So, if one makes that investment at 23 years of age, they may create the corpus by 55 years of age.