The Power Of Compounding: How A Rs 5,000 Monthly SIP Grows Over 25 Years
Mutual fund systematic investment plans (SIP) are a popular way to build wealth through consistent investment of small amounts every month.
Investing early is one of the smartest financial decisions you can make. If you're young and have time on your side, even a small SIP in mutual funds can help you grow a substantial corpus for a financially secure future.
This is the power of compounding, where small investments over a longer tenure generate higher returns. Mutual fund systematic investment plans (SIPs) are a popular way to build wealth through the stock market. Investors get an opportunity to invest fixed amounts regularly through SIPs. This promotes disciplined investing and averages out risks over time. This is why financial experts recommend staying invested for a long duration for maximum returns from mutual fund SIPs.
Long-term investing also helps to spread out risks, making your portfolio more stable. Let’s see how a monthly SIP of Rs 5,000 for 25 years could help you to grow a substantial corpus.
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Monthly SIP Of Rs 5,000 For 25 Years
SIP amount: Rs 5,000
Investment duration: 25 years
Expected rate of return: 12%
Invested amount: Rs 15,00,000
Estimated returns: Rs 79,88,175
Total corpus value: Rs 94,88,175
This shows that the invested amount is just 15% of the total corpus, while 85% has come from returns. This means that the power of compounding plays a major role in wealth creation over the long term.
With a monthly SIP amount of Rs 5,000, one can steadily create a corpus of nearly Rs 95 lakh. To be clear, this corpus value does not account for factors such as inflation and taxes.
To reach your financial goals faster, you can also adopt the ‘step-up’ SIP strategy, where you increase your SIP amount at regular intervals, usually annually. By gradually raising your investment, you keep your investments at the same pace with income growth and inflation. This enhanced contribution allows the power of compounding to work more effectively.
Choosing a mutual fund SIP plan should be based on your financial goals and investment horizon. Seeking guidance from a certified financial expert before making any significant financial commitment may help to minimise risks and maximise gains.
