A systematic investment plan (SIP) enables investors to channelise their surplus funds steadily into their mutual fund scheme of choice, helping maximise the benefit of compounding. According to reports from ZeeBiz, compounding grows investments exponentially over time, helping create substantial wealth over the years. In this analysis, three scenarios are considered: a Rs 5,000 monthly SIP for 25 years, Rs 15,000 for 15 years, and Rs 20,000 for 10 years at an expected annualised return of 12 per cent.
At an annualised 12 per cent return, a monthly SIP of Rs 5,000 for 25 years (300 months) will lead to a corpus of approximately Rs 94.88 lakh. As reported by ZeeBiz, this comprises a principal of Rs 15 lakh and an expected return of Rs 79.88 lakh. The calculations show the compounding effect over time, with the initial principal growing exponentially through consistent monthly investments. The detailed breakdown shows how the corpus grows from Rs 60,000 in the first month to Rs 15,00,000 by the end of the 25th month, demonstrating the power of sustained investing over time.
Similarly, at the same expected return, a monthly SIP of Rs 15,000 for 15 years (180 months) will accumulate wealth to the tune of Rs 75.69 lakh. According to calculations reported by ZeeBiz, this comprises a principal of Rs 27 lakh and an expected return of approximately Rs 48.69 lakh. The shorter investment horizon still demonstrates significant wealth creation through compounding effects, with the corpus growing from Rs 2,40,000 in the first year to Rs 2,17,538 by the second year, showing consistent growth momentum.
At the same expected return, a monthly SIP of Rs 20,000 for 10 years (120 months) will accumulate wealth to the tune of Rs 46.47 lakh. As reported by ZeeBiz, this comprises a principal of Rs 24 lakh and an expected return of approximately Rs 22.47 lakh. Despite the highest monthly investment amount, the shorter investment period results in lower total corpus compared to the longer-term scenarios, with the corpus growing from Rs 2,40,000 in the first year to Rs 46,46,782 by the final year. The data demonstrates how time significantly impacts compounding returns, with the 25-year scenario generating nearly double the corpus of the 10-year scenario.
For the sake of simplicity, compounding in SIPs can be understood as 'return on return', wherein initial returns get added to the principal to boost future returns. According to ZeeBiz, compounding helps generate returns on both the original principal and the accumulated interest over time, contributing to exponential growth over longer periods. This approach eliminates the need for a lump sum investment, making it convenient for many individuals - especially salaried investors - to invest in their preferred mutual funds. The detailed calculations demonstrate this mechanism clearly, showing how the Rs 5,000 monthly SIP grows from Rs 60,000 to Rs 94.88 lakh over 25 years, highlighting the power of consistent, long-term investing.
