Starting an SIP may seem like a small financial decision, especially when the monthly amount is just Rs 1,000, but when you stay invested for several years, time can make a noticeable difference to the final corpus.
A five-year delay may mean fewer contributions, but it also means losing valuable years of compounding. To understand the difference, consider two investors who invest the same Rs 1,000 every month and assume the same annual return of 12%.
The only difference is when they start. One begins at 30 and stays invested until 60, while the other starts at 35 and invests until 60. Let's take a look at how the extra five years can change the final value of their investments.
What Is SIP?
A Systematic Investment Plan (SIP) is a way of investing a fixed amount regularly in a mutual fund. Investors can choose to invest on a monthly, weekly or quarterly basis, depending on the investment platform and scheme. With a SIP, the selected amount is invested regularly, allowing investors to build their investment gradually instead of putting in a large amount at once.
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Starting At 30: Rs 30.80 Lakh Corpus
Consider an investor who starts a Rs 1,000 monthly SIP at the age of 30 and continues it until turning 60. Over 30 years, the investor would put in a total of Rs 3.60 lakh through monthly contributions. At an assumed annual return of 12%, the investment could grow to around Rs 30.81 lakh by the age of 60. This includes estimated returns of approximately Rs 27.21 lakh, which is much higher than the amount actually invested.
Starting At 35: Rs 17.02 Lakh Corpus
Now consider another investor who starts the same Rs 1,000 monthly SIP at 35 and continues investing until the age of 60. The investor would contribute Rs 3 lakh over the period of 25 years. At the same assumed 12% annual return, the investment could grow to around Rs 17.02 lakh by the time the investor turns 60. The estimated returns would be around Rs 14.02 lakh of the final corpus.
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Five Years Can Make A Big Difference
The difference between the two investors is huge. The investor who starts at 30 could accumulate around Rs 30.81 lakh, compared with approximately Rs 17.02 lakh for the investor who starts at 35.
That is a difference of nearly Rs 13.79 lakh in the estimated final corpus. The earlier investor contributes only Rs 60,000 more over the additional five years, but the potential final corpus is nearly Rs 13.79 lakh higher. This illustrates how the longer investment period can significantly affect the outcome when returns are allowed to compound over time.
Why Starting Early Matters
The example shows that the amount invested is only one part of long-term wealth creation. The length of time the money remains invested can also make a significant difference. Starting a SIP earlier gives the investment more time to potentially grow and compound.
The 12% return used in the above illustration is only an assumed rate, and actual mutual fund returns can be higher or lower as they are market-linked and never guaranteed. For someone planning for a long-term goal such as retirement, the important point is: starting earlier can give compounding more time to work.
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