New Delhi: A monthly Systematic Investment Plan (SIP) of ₹25,000 may look like a modest investment when viewed month by month, but staying invested for several decades can potentially create a substantial corpus through the power of compounding.
For investors considering long-term wealth creation through equity mutual funds, the difference between investing for 10 years and continuing for 20 or 30 years can be significant. An illustration using an assumed annual return of 12% shows how a fixed ₹25,000 monthly SIP could potentially grow over different investment horizons.
The calculation assumes that the investor contributes ₹25,000 every month without increasing the SIP amount. At ₹25,000 a month, the annual contribution comes to ₹3 lakh.
However, the final corpus depends on market performance. The 12% return used in the calculation is only an illustration and should not be treated as a guaranteed or expected return.
₹25,000 SIP for 10 years
If an investor puts ₹25,000 into a mutual fund SIP every month for 10 years, the total amount invested would be ₹30 lakh.
Assuming a 12% annualised return, the estimated gains could amount to around ₹26.01 lakh.
That would take the projected maturity value to approximately ₹56.01 lakh.
In other words, the investor contributes ₹30 lakh over the decade, while the assumed market-linked growth contributes another ₹26.01 lakh.
The example demonstrates the initial impact of compounding, although the difference between the invested amount and the projected corpus is still relatively moderate compared with longer investment periods.
10-year SIP calculation
- Monthly SIP: ₹25,000
- Investment period: 10 years
- Total investment: ₹30 lakh
- Assumed return: 12% per annum
- Estimated returns: ₹26.01 lakh
- Projected corpus: ₹56.01 lakh
₹25,000 SIP for 20 years
The effect of compounding becomes considerably more visible when the same ₹25,000 monthly SIP continues for 20 years.
Over two decades, the investor would contribute ₹60 lakh in total.
At the assumed 12% annual return, the estimated gains could reach approximately ₹1.70 crore.
The projected corpus would therefore be around ₹2.30 crore.
This means the investor’s estimated gains could be substantially higher than the original contributions. The additional 10 years of investing, compared with the 10-year scenario, gives the accumulated money more time to generate further returns.
20-year SIP calculation
- Monthly SIP: ₹25,000
- Investment period: 20 years
- Total investment: ₹60 lakh
- Assumed return: 12% per annum
- Estimated returns: ₹1.70 crore
- Projected corpus: ₹2.30 crore
The important point is that the investor contributes another ₹30 lakh between years 10 and 20, but the projected corpus increases by far more than the additional contributions because the accumulated investment has had more time to compound.
₹25,000 SIP for 30 years
The biggest difference appears when the investment continues for three decades.
An investor maintaining a ₹25,000 monthly SIP for 30 years would contribute a total of ₹90 lakh.
At an assumed 12% annual return, the estimated gains could reach approximately ₹6.80 crore.
The projected maturity corpus would therefore be around ₹7.70 crore.
30-year SIP calculation
- Monthly SIP: ₹25,000
- Investment period: 30 years
- Total investment: ₹90 lakh
- Assumed return: 12% per annum
- Estimated returns: ₹6.80 crore
- Projected corpus: ₹7.70 crore
The illustration highlights why time can be one of the most important factors in long-term investing.
Although the investor contributes only ₹30 lakh more during the third decade, the projected corpus increases by several crores because the accumulated money continues to compound.
How compounding changes the outcome
The three scenarios demonstrate the difference between simply saving money and allowing investments to remain invested for a long period.
After 10 years, the projected corpus is about ₹56.01 lakh.
After 20 years, it rises to around ₹2.30 crore.
After 30 years, the illustration reaches approximately ₹7.70 crore.
The investor’s total contribution across these periods is ₹30 lakh, ₹60 lakh and ₹90 lakh respectively. The increasingly large difference between the amount invested and the projected corpus comes from the assumed investment growth.
Compounding essentially means that returns generated by an investment can themselves generate further returns when they remain invested.
This is why extending the investment horizon can have a disproportionately large effect on the final corpus.
What happens if returns are lower?
Investors should not assume that a 12% annual return will actually be achieved every year.
Equity mutual funds are market-linked investments, and returns can fluctuate significantly depending on market conditions, economic growth, interest rates, corporate earnings and investor sentiment.
The 12% figure used in the illustration is therefore a mathematical assumption rather than a promise from a mutual fund or investment adviser.
If the long-term return is lower, the final corpus would also be substantially smaller. Conversely, a higher long-term return could produce a larger corpus.
Actual returns will also vary from year to year rather than arriving at a fixed rate annually.
Step-up SIP can increase the potential corpus
The calculation assumes that the investor continues with the same ₹25,000 monthly contribution throughout the investment period.
In reality, an investor’s income may increase over time. One strategy investors sometimes consider is a step-up SIP, in which the monthly contribution is increased periodically.
For example, an investor could raise the SIP amount whenever their salary or income increases. This allows the investment contribution to grow alongside earning capacity.
A higher contribution can potentially accelerate wealth creation, although it also requires the investor to maintain sufficient cash flow and financial discipline.
SIP does not eliminate market risk
While SIPs provide a disciplined approach to investing, they do not guarantee profits or protect investors from market declines.
The advantage of investing regularly is that purchases are spread across different market levels. When prices are lower, the same SIP amount buys more units; when prices are higher, it buys fewer units.
This approach is commonly associated with rupee-cost averaging, although it does not guarantee that an investor will make a profit.
Investors should also consider their financial goals, investment horizon, risk tolerance, asset allocation and tax implications before selecting a mutual fund strategy.
Why starting early matters
The ₹25,000 example also demonstrates why delaying long-term investments can have a significant opportunity cost.
An investor who starts early has more years for the accumulated corpus to compound. Someone starting later may need to contribute substantially more each month to target a similar final amount.
This makes time particularly important for goals such as retirement, children’s education or long-term wealth creation.
However, investors should not select an equity-oriented investment solely because of a projected corpus based on a historical or assumed return. The investment should match the investor’s risk profile and financial objective.
₹25,000 SIP: 10 vs 20 vs 30 years
| Investment period | Total invested | Assumed return | Estimated returns | Projected corpus |
|---|---|---|---|---|
| 10 years | ₹30 lakh | 12% | ₹26.01 lakh | ₹56.01 lakh |
| 20 years | ₹60 lakh | 12% | ₹1.70 crore | ₹2.30 crore |
| 30 years | ₹90 lakh | 12% | ₹6.80 crore | ₹7.70 crore |
The table shows the powerful effect of extending the investment period. The figures are based on the illustration published by NDTV Profit and should not be interpreted as assured investment outcomes.
A ₹25,000 monthly SIP can potentially grow into a sizeable corpus when maintained over a long period, with the assumed 12% return producing projected values of ₹56.01 lakh after 10 years, ₹2.30 crore after 20 years and ₹7.70 crore after 30 years. The biggest lesson is the importance of time and compounding. However, actual mutual fund returns are market-linked and can differ significantly from these illustrations, so investors should make decisions based on their goals, risk appetite and financial circumstances.