Small SIP, Big Impact: Rs 1,234 monthly investment for 35 years or Rs 12,345 for 16 years, which do you think works better?
A Systematic Investment Plan (SIP) is a popular way to invest in mutual funds, as it allows investors to gradually park their balance in a mutual fund scheme of their choice. This helps the investor to not only commit to his long-term investment strategy but also maximize the compounding benefit. 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 consider two scenarios to understand how time matters in compounding: a monthly SIP of Rs 1,234 for 35 years and a monthly SIP of Rs 12,345 for 16 years.
Can you predict the difference in the result in both cases at an expected annual return of 12 percent?
SIP Return Rates | Which would you prefer: Rs 1,234 monthly investment for 35 years or Rs 12,345 for 15 years?
Scenario 1: Rs 1,234 monthly SIP for 35 years
Calculations show that at an annual return of 12 percent, a monthly SIP of Rs 1,234 for 35 years (420 months) will result in a corpus of around Rs 80.12 lakh (principal of around Rs 5.18 lakh and an expected return of -Rs 74.97 lakh ).
Scenario 2: Rs 12,345 monthly SIP for 16 years
Similarly, for the same expected return period, a monthly SIP of Rs 12,345 for 16 years (192 months) will accumulate wealth of Rs 71.77 lakh, as calculated (principal of Rs 23.70 lakh and expected return of Rs 48.07 lakh ).
Now, let’s look at these rates in detail (figures in rupees):
Power of Integration | Scenario 1
| Time (in years) | Investment | Come back | The Corpus |
| 1 | 14,808 | 999 | 15,807 |
| 2 | 29,616 | 4,002 | 33,618 |
| 3 | 44,424 | 9,264 | 53,688 |
| 4 | 59,232 | 17,072 | 76,304 |
| 5 | 74,040 | 27,748 | 1,01,788 |
| 6 | 88,848 | 41,656 | 1,30,504 |
| 7 | 1,03,656 | 59,206 | 1,62,862 |
| 8 | 1,18,464 | 80,860 | 1,99,324 |
| 9 | 1,33,272 | 1,07,138 | 2,40,410 |
| 10 | 1,48,080 | 1,38,626 | 2,86,706 |
| 11 | 1,62,888 | 1,75,987 | 3,38,875 |
| 12 | 1,77,696 | 2,19,963 | 3,97,659 |
| 13 | 1,92,504 | 2,71,395 | 4,63,899 |
| 14 | 2,07,312 | 3,31,228 | 5,38,540 |
| 15 | 2,22,120 | 4,00,527 | 6,22,647 |
| 16 | 2,36,928 | 4,80,493 | 7,17,421 |
| 17 | 2,51,736 | 5,72,478 | 8,24,214 |
| 18 | 2,66,544 | 6,78,008 | 9,44,552 |
| 19 | 2,81,352 | 7,98,800 | 10,80,152 |
| 20 | 2,96,160 | 9,36,789 | 12,32,949 |
| 21 | 3,10,968 | 10,94,156 | 14,05,124 |
| 22 | 3,25,776 | 12,73,360 | 15,99,136 |
| 23 | 3,40,584 | 14,77,169 | 18,17,753 |
| 24 | 3,55,392 | 17,08,704 | 20,64,096 |
| 25 | 3,70,200 | 19,71,482 | 23,41,682 |
| 26 | 3,85,008 | 22,69,464 | 26,54,472 |
| 27 | 3,99,816 | 26,07,117 | 30,06,933 |
| 28 | 4,14,624 | 29,89,470 | 34,04,094 |
| 29 | 4,29,432 | 34,22,192 | 38,51,624 |
| 30 | 4,44,240 | 39,11,674 | 43,55,914 |
| 31 | 4,59,048 | 44,65,111 | 49,24,159 |
| 32 | 4,73,856 | 50,90,617 | 55,64,473 |
| 33 | 4,88,664 | 57,97,330 | 62,85,994 |
| 34 | 5,03,472 | 65,95,550 | 70,99,022 |
| 35 | 5,18,280 | 74,96,882 | 80,15,162 |
Power of Integration | Scenario 2
| Time (in years) | Investment | Come back | The Corpus |
| 1 | 1,48,140 | 9,991 | 1,58,131 |
| 2 | 2,96,280 | 40,037 | 3,36,317 |
| 3 | 4,44,420 | 92,682 | 5,37,102 |
| 4 | 5,92,560 | 1,70,791 | 7,63,351 |
| 5 | 7,40,700 | 2,77,594 | 10,18,294 |
| 6 | 8,88,840 | 4,16,731 | 13,05,571 |
| 7 | 10,36,980 | 5,92,301 | 16,29,281 |
| 8 | 11,85,120 | 8,08,925 | 19,94,045 |
| 9 | 13,33,260 | 10,71,811 | 24,05,071 |
| 10 | 14,81,400 | 13,86,826 | 28,68,226 |
| 11 | 16,29,540 | 17,60,580 | 33,90,120 |
| 12 | 17,77,680 | 22,00,523 | 39,78,203 |
| 13 | 19,25,820 | 27,15,050 | 46,40,870 |
| 14 | 20,73,960 | 33,13,620 | 53,87,580 |
| 15 | 22,22,100 | 40,06,891 | 62,28,991 |
| 16 | 23,70,240 | 48,06,874 | 71,77,114 |
SIP & Compounding | What is compounding and how does it work?
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.
Compounding helps generate a return on both the original principal and interest that accrues gradually over time, which contributes to compound growth over long periods of time.
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.
ALSO READ: Small SIP, Big Impact: Rs 1,111 monthly SIP for 40 years, Rs 11,111 for 20 years or Rs 22,222 for 10 years, which do you think works better?
Learn more about the power of integration
