Systematic Investment Plans (SIPs) are becoming increasingly popular among investors. As people focus on their financial journey, they are looking for diversified investment options to optimise returns. Besides returns, it is also important to note that starting early plays a crucial role in building wealth. When individuals begin investing at a younger age, they give their money more time to grow. This growth largely comes from the power of compounding.
Someone who starts investing at 25 has a much bigger advantage compared to someone who begins at 40. With market-linked SIPs, both can reach a Rs 2 crore corpus, but the investment amount can differ significantly.
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Assuming someone aged 20, 30 and 40 wishes to accumulate a Rs 2 crore corpus by the age of 55 years. At a 12% annual return rate, here's how their investments may look:
Age: 25
- SIP amount: Rs 5,700
- Investment duration: 30 years
- Expected rate of return: 12%
- Invested amount: Rs 20,52,000
- Estimated returns: Rs 1,80,68,508
- Total value: Rs 2,01,20,508
Here, the investment amount is just 10% of the total corpus, which is a significant advantage for long-term investors and shows how the power of compounding works over time.
Age: 30
- SIP amount: Rs 10,500
- Investment duration: 25 years
- Expected rate of return: 12%
- Invested amount: Rs 31,50,000
- Estimated returns: Rs 1,67,75,168
- Total value: Rs 1,99,25,168
In this case, it is observed that just by delaying investments for 5 years, the contribution jumps to nearly double the amount needed at 25. This shows how loss of time can impact compounding.
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Age: 40
- SIP amount: Rs 40,000
- Investment duration: 15 years
- Expected rate of return: 12%
- Invested amount: Rs 72,00,000
- Estimated returns: Rs 1,29,83,039
- Total value: Rs 2,01,83,039
In this case, it can be seen that starting investments late can cause significant financial stress. From just Rs 5,700 per month at 25, someone at 40 needs over seven times this amount to build a similar corpus.
Investors should note that starting early not only reduces the monthly investment burden but also allows them to benefit fully from compounding. Staring early can also help to spread risks over time. But in any case, investors are recommended to always consult with a financial expert before making any significant financial commitment.
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