Systematic Investment Plans (SIPs) are one of the most popular ways to build long-term wealth, but the early years often test an investor's patience. Despite investing consistently every month, many investors feel their portfolio is growing slowly because market fluctuations and a relatively small corpus limit visible gains.
This is one of the key reasons some investors discontinue their SIPs or redeem their investments before compounding has had a chance to do the heavy lifting. Staying invested is crucial, as compounding becomes increasingly powerful over time.
Once the portfolio reaches a critical size, the invested amount starts producing disproportionately larger gains.
Also Read: Cracking Rs 1 Crore SIP Goal: Why The First Rs 25 Lakh Is The Hardest Milestone
Understanding with a quick example
Consider a monthly SIP of Rs 30,000 with an assumed annualised return of 12 percent. It takes approximately 8 years 3 months to accumulate the first Rs 50 lakh.
SIP Calculation
Invested amount: Rs 30,000 per month
Assumed average annual return: 12% per annum
Investment period: 8 years 3 months
Total amount invested: Rs 29.70 lakh
Estimated wealth created through returns: Rs 20.64 lakh
Total corpus: Rs 50.34 lakh
Once this milestone is achieved, wealth creation begins to accelerate. The second Rs 50 lakh takes just over four years, while the third requires less than three years.
As the investment corpus continues to grow, every additional Rs 50 lakh is accumulated in a shorter period. Reaching Rs 2 crore from Rs 1.5 crore takes about two years, while the jump from Rs 2 crore to Rs 2.5 crore takes roughly one year and eight months. After the portfolio crosses Rs 4 crore, each additional Rs 50 lakh can be added in around a year or even less.
Also Read: SIP Calculator: Your Rs 5,000 Monthly Investment Turns Into THIS Over 5, 10 And 20 Years
Why does this happen?
The reason behind this acceleration is the power of compounding. During the initial years, most of the portfolio consists of the investor's own contributions, while returns remain relatively modest. As the corpus expands, investment gains become larger and are reinvested, allowing them to generate returns of their own.
Over time, these compounded gains contribute more to portfolio growth than fresh monthly investments, making wealth creation significantly faster.
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