Rs 2,100 monthly SIP for 40 years or Rs 5,100 for 20 years, which do you think works better for the same annual return?
A Systematic Investment Plan (SIP) is a popular way to invest in mutual funds, as it allows investors to invest their accumulated funds gradually in their chosen equity-linked mutual fund scheme. In this way, the investor not only remains committed to the investment strategy but is also able to leverage the power of compounding. For consistent individuals, compounding increases investments consistently over time, helping to create more wealth over the years. Sometimes, combining produces amazing results, especially in the long run.
In this article, let’s look at two scenarios to understand how time matters in compounding: a monthly SIP of Rs 2,100 for 20 years and a monthly SIP of Rs 5,100 for 10 years. Can you predict the difference in the result for the two at an expected annual return of 12 percent?
SIP Return Rates | Which would you prefer, Rs 2,100 monthly investment for 20 years or Rs 5,100 for 10?
Scenario 1: Rs 2,100 monthly SIP for 20 years
Calculations show that at a return of 12 percent per annum, a monthly SIP of Rs 2,100 for 20 years (240 months) will result in a corpus of around Rs 20.98 lakh.
Scenario 2: Rs 5,100 monthly SIP for 10 years
Similarly, for the same expected return period, a monthly SIP of Rs 5,100 for 10 years (120 months) will accumulate wealth of around Rs 11.85 lakh, according to the calculations.
Now, let’s look at these rates in detail (figures in rupees):
Power of Integration | Scenario 1: Rs 2,100 monthly SIP for 20 years
| Time (in years) | Investment | Come back | The Corpus |
| 1 | 25,200 | 1,700 | 26,900 |
| 2 | 50,400 | 6,811 | 57,211 |
| 3 | 75,600 | 15,766 | 91,366 |
| 4 | 1,00,800 | 29,053 | 1,29,853 |
| 5 | 1,26,000 | 47,221 | 1,73,221 |
| 6 | 1,51,200 | 70,890 | 2,22,090 |
| 7 | 1,76,400 | 1,00,756 | 2,77,156 |
| 8 | 2,01,600 | 1,37,606 | 3,39,206 |
| 9 | 2,26,800 | 1,82,325 | 4,09,125 |
| 10 | 2,52,000 | 2,35,912 | 4,87,912 |
| 11 | 2,77,200 | 2,99,491 | 5,76,691 |
| 12 | 3,02,400 | 3,74,330 | 6,76,730 |
| 13 | 3,27,600 | 4,61,855 | 7,89,455 |
| 14 | 3,52,800 | 5,63,678 | 9,16,478 |
| 15 | 3,78,000 | 6,81,610 | 10,59,610 |
| 16 | 4,03,200 | 8,17,694 | 12,20,894 |
| 17 | 4,28,400 | 9,74,234 | 14,02,634 |
| 18 | 4,53,600 | 11,53,822 | 16,07,422 |
| 19 | 4,78,800 | 13,59,383 | 18,38,183 |
| 20 | 5,04,000 | 15,94,211 | 20,98,211 |
Power of Integration | Scenario 2: Rs 5,100 monthly SIP for 10 years
| Time (in years) | Investment | Come back | The Corpus |
| 1 | 61,200 | 4,128 | 65,328 |
| 2 | 1,22,400 | 16,540 | 1,38,940 |
| 3 | 1,83,600 | 38,289 | 2,21,889 |
| 4 | 2,44,800 | 70,558 | 3,15,358 |
| 5 | 3,06,000 | 1,14,680 | 4,20,680 |
| 6 | 3,67,200 | 1,72,161 | 5,39,361 |
| 7 | 4,28,400 | 2,44,693 | 6,73,093 |
| 8 | 4,89,600 | 3,34,185 | 8,23,785 |
| 9 | 5,50,800 | 4,42,790 | 9,93,590 |
| 10 | 6,12,000 | 5,72,929 | 11,84,929 |
SIP & Compounding | What is compounding and how does it work?
Simply put, compounding helps generate a return on both the original principal and interest that accrues gradually over time, contributing to exponential growth over long periods of time.
For simplicity, one can understand compounding in SIPs as ‘rolling back’, where initial returns are added to the principal to improve future returns, and so on.
This approach eliminates the need to invest in lump sums, making it easier for many people—especially high earners—to invest in their favorite mutual funds. Learn more about the power of integration
