For many investors, a monthly SIP of Rs 25,000 may look like a disciplined way to build long-term wealth. However, in addition to consistency, the timing of returns also has an impact on the final corpus. Many investors expect to see strong gains in the first few years, but that is rarely how SIPs work. The early years are primarily about building the investment base. Since money is added gradually every month, the total corpus remains relatively small during this period.
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As a result, even if markets deliver strong returns early on, the gains may appear limited because they are calculated on a smaller investment amount.
After 10 to 15 years of consistent investing, the accumulated corpus becomes much larger. If markets perform well during this stage, the same percentage return translates into significantly higher gains. This is because it is applied to a much bigger investment base.
Here's How The Math Works Out:
Case 1. On an SIP of Rs 25,000 per month for 20 years, 20% returns are earned in the first five years but 14% in the remaining 15 years.
Monthly SIP: Rs 25,000 (flat, no step-up)
Total investment in 20 yrs: Rs 60,00,00
Total invested in first 5 years: Rs 15,00,000
Gains earned: Rs 10 lakh
Corpus after first 5 years on the SIP at 20% returns: Rs 25 lakh
For remaining 15 years, returns earned on existing Rs 25 lakh corpus at 14%: Rs 1.53 crore
Final corpus value of Rs 25 lakh investment after 15 years: Rs 1.78 crore
Returns on fresh Rs 25,000 SIP per month for 15 years at 14%: Rs 1.08 crore (Final corpus = Rs 1.53 crore)
Overall corpus on Rs 60 lakh investment: Rs 3.17 crore
Wealth gained: Rs 2.57 crore
Case 2. On an SIP of Rs 25,000 per month for 20 years, 14% returns are earned in the first 15 years, followed by 20% in the last five years.
Monthly SIP: Rs 25,000
Interest in first 15 years on Rs 25,000: 14%
Investment: Rs 45 lakh
Returns earned during 15 year period: Rs 1.08 crore
Final corpus after 15 years on Rs 45 lakh investment: Rs 1.53 crore
For the remaining 5 years, returns earned on Rs 1.53 crore investment for remaining 5 years at 20%: Rs 3.80 crore
Returns earned on new Rs 25,000 SIP at 20% for remaining 5 years: Rs 10 lakh (Investment = Rs 15 lakh)
Final corpus on new SIP after 5 years: Rs 25 lakh
Overall corpus value after 20 years: Rs 3.80 crore + Rs 25 lakh = Rs 4.05 crore
The calculations show that despite high returns early on, the limited investment value results in lower impact of compounding, ultimately affecting the final corpus.
On the contrary, even with lower power of compounding in the early years, a sudden favourable market or a brief period of strong return in the later years significantly boosts the corpus, for the interest works on high base investment value.
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Hence, consistency and patience are considered key to successful SIP investing. Staying invested for longer allows investors to build a larger corpus, giving compounding more capital to work with. Over long term, the timing of returns can influence the final investment value as much as regular monthly contributions.
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