Small SIP, Big Impact: Rs 500 monthly investment for 30 years or Rs 5,000 for 10 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 greater wealth over the years. Sometimes, combining produces amazing results, especially in the long run. In this article, let’s consider four scenarios to understand how time matters in compounding: a monthly SIP of Rs 500 for 30 years, Rs 1,000 for 20 years, Rs 5,000 for 10 years and Rs 10,000 5 years.
Can you predict the difference in the outcome in all four cases at an expected annual return of 12 percent?
SIP Return Rates | Which would you prefer: Rs 500 monthly investment for 30 years, Rs 1,000 for 20 years, Rs 5,000 for 10 years or Rs 10,000 for 5 years?
Scenario 1: Rs 500 monthly SIP for 30 years
Calculations show that at an annual return of 12 percent, a monthly SIP of Rs 500 for 30 years (360 months) will result in a corpus of around Rs 17.65 lakh (a principal of Rs 1.8 lakh and an expected return of around for Rs 15.85 lakh ).
Scenario 2: Rs 1,000 monthly SIP for 20 years
Similarly, for the same expected return, a monthly SIP of Rs 1,000 for 20 years (240 months) will accumulate wealth of Rs 9.99 lakh, mathematically (principal of Rs 2.4 lakh and expected return of Rs 7.59 lakh ).
Scenario 3: Rs 5,000 monthly SIP for 10 years
Similarly, for the same expected return, a monthly SIP of Rs 5,000 for 10 years (120 months) will accumulate wealth of Rs 11.62 lakh, as calculated (principal of Rs 6 lakh and expected return of Rs 5.62 lakh ).
Scenario 4: Rs 10,000 monthly SIP for 5 years
Similarly, for the same expected return, a monthly SIP of Rs 10,000 for 5 years (60 months) will accumulate wealth of Rs 8.25 lakh, mathematically (principal of Rs 6 lakh and expected return of Rs 2.25 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 | 6,000 | 405 | 6,405 |
| 2 | 12,000 | 1,622 | 13,622 |
| 3 | 18,000 | 3,754 | 21,754 |
| 4 | 24,000 | 6,917 | 30,917 |
| 5 | 30,000 | 11,243 | 41,243 |
| 6 | 36,000 | 16,879 | 52,879 |
| 7 | 42,000 | 23,989 | 65,989 |
| 8 | 48,000 | 32,763 | 80,763 |
| 9 | 54,000 | 43,411 | 97,411 |
| 10 | 60,000 | 56,170 | 1,16,170 |
| 11 | 66,000 | 71,307 | 1,37,307 |
| 12 | 72,000 | 89,126 | 1,61,126 |
| 13 | 78,000 | 1,09,966 | 1,87,966 |
| 14 | 84,000 | 1,34,209 | 2,18,209 |
| 15 | 90,000 | 1,62,288 | 2,52,288 |
| 16 | 96,000 | 1,94,689 | 2,90,689 |
| 17 | 1,02,000 | 2,31,960 | 3,33,960 |
| 18 | 1,08,000 | 2,74,720 | 3,82,720 |
| 19 | 1,14,000 | 3,23,663 | 4,37,663 |
| 20 | 1,20,000 | 3,79,574 | 4,99,574 |
| 21 | 1,26,000 | 4,43,337 | 5,69,337 |
| 22 | 1,32,000 | 5,15,948 | 6,47,948 |
| 23 | 1,38,000 | 5,98,529 | 7,36,529 |
| 24 | 1,44,000 | 6,92,344 | 8,36,344 |
| 25 | 1,50,000 | 7,98,818 | 9,48,818 |
| 26 | 1,56,000 | 9,19,556 | 10,75,556 |
| 27 | 1,62,000 | 10,56,368 | 12,18,368 |
| 28 | 1,68,000 | 12,11,292 | 13,79,292 |
| 29 | 1,74,000 | 13,86,626 | 15,60,626 |
| 30 | 1,80,000 | 15,84,957 | 17,64,957 |
Power of Integration | Scenario 2
| Time (in years) | Investment | Come back | The Corpus |
| 1 | 12,000 | 809 | 12,809 |
| 2 | 24,000 | 3,243 | 27,243 |
| 3 | 36,000 | 7,508 | 43,508 |
| 4 | 48,000 | 13,835 | 61,835 |
| 5 | 60,000 | 22,486 | 82,486 |
| 6 | 72,000 | 33,757 | 1,05,757 |
| 7 | 84,000 | 47,979 | 1,31,979 |
| 8 | 96,000 | 65,527 | 1,61,527 |
| 9 | 1,08,000 | 86,822 | 1,94,822 |
| 10 | 1,20,000 | 1,12,339 | 2,32,339 |
| 11 | 1,32,000 | 1,42,615 | 2,74,615 |
| 12 | 1,44,000 | 1,78,252 | 3,22,252 |
| 13 | 1,56,000 | 2,19,931 | 3,75,931 |
| 14 | 1,68,000 | 2,68,418 | 4,36,418 |
| 15 | 1,80,000 | 3,24,576 | 5,04,576 |
| 16 | 1,92,000 | 3,89,378 | 5,81,378 |
| 17 | 2,04,000 | 4,63,921 | 6,67,921 |
| 18 | 2,16,000 | 5,49,439 | 7,65,439 |
| 19 | 2,28,000 | 6,47,325 | 8,75,325 |
| 20 | 2,40,000 | 7,59,148 | 9,99,148 |
Power of Integration | Scenario 3
| Time (in years) | Investment | Come back | The Corpus |
| 1 | 60,000 | 4,047 | 64,047 |
| 2 | 1,20,000 | 16,216 | 1,36,216 |
| 3 | 1,80,000 | 37,538 | 2,17,538 |
| 4 | 2,40,000 | 69,174 | 3,09,174 |
| 5 | 3,00,000 | 1,12,432 | 4,12,432 |
| 6 | 3,60,000 | 1,68,785 | 5,28,785 |
| 7 | 4,20,000 | 2,39,895 | 6,59,895 |
| 8 | 4,80,000 | 3,27,633 | 8,07,633 |
| 9 | 5,40,000 | 4,34,108 | 9,74,108 |
| 10 | 6,00,000 | 5,61,695 | 11,61,695 |
Power of Integration | Scenario 4
| Time (in years) | Investment | Come back | The Corpus |
| 1 | 1,20,000 | 8,093 | 1,28,093 |
| 2 | 2,40,000 | 32,432 | 2,72,432 |
| 3 | 3,60,000 | 75,076 | 4,35,076 |
| 4 | 4,80,000 | 1,38,348 | 6,18,348 |
| 5 | 6,00,000 | 2,24,864 | 8,24,864 |
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. Learn more about the power of integration
