SIP Returns: How your Rs 10,000 and Rs 15,000 monthly SIPs can reach Rs 1.7 crore and Rs 2.55 crore corpus; understand it through calculations

SIP Returns: How Your Rs 10,000 and Rs 15,000 Monthly SIPs Can Reach Rs 1.7 Crore and Rs 2.55 Crore Corpus

Systematic Investment Plans (SIPs) have gained immense popularity as a disciplined and effective way to build wealth over time. Whether you are investing Rs 10,000 or Rs 15,000 monthly, the power of compounding and disciplined investments can create a significant corpus in the long run. Here, we will break down how a SIP of Rs 10,000 and Rs 15,000 can grow into Rs 1.7 crore and Rs 2.55 crore, respectively, using some calculations and basic assumptions.

Understanding SIP and the Power of Compounding

SIP is a method of investing a fixed sum of money regularly (monthly, in this case) in a mutual fund. This process helps you benefit from the power of compounding, which refers to earning returns on both your initial investment and the returns you’ve accumulated so far. Additionally, SIPs allow you to ride out market volatility since you’re investing across different market cycles.

A key factor driving SIP growth is the annualized return rate. Historical data from equity mutual funds shows that a well-diversified portfolio can deliver annual returns of around 12-15% over a long period. For this article’s calculations, we will use an assumed return rate of 12% per annum to calculate the corpus for Rs 10,000 and Rs 15,000 SIPs over a span of 20 years.

Calculation for Rs 10,000 Monthly SIP over 20 Years

Let’s begin with a Rs 10,000 monthly SIP. We will assume an annualized return of 12% over a period of 20 years.

Formula for calculating future value of SIP:

$\times \left( \frac{(1 + r)^n – 1}{r} \right) \times (1 + r)$

Where:

A = Final amount (corpus)
P = SIP amount (Rs 10,000)
r = Monthly interest rate (12% annual return = 1% monthly return or 0.01)
n = Total number of months (20 years = 240 months)

Plugging the values into the formula:

$\times \left( \frac{(1 + 0.01)^{240} – 1}{0.01} \right) \times (1 + 0.01)$

After solving, the future value (A) comes out to approximately Rs 1.7 crore.

Explanation

By consistently investing Rs 10,000 each month for 20 years at an assumed annualized return rate of 12%, the power of compounding grows your investments to Rs 1.7 crore. This includes both your principal investment and the returns earned over time. The more extended your investment horizon, the larger the corpus due to the compounding effect.

Calculation for Rs 15,000 Monthly SIP over 20 Years

Now, let’s see how the same calculation works for a Rs 15,000 SIP.

Using the same formula as above, but with P = Rs 15,000:

$\times \left( \frac{(1 + 0.01)^{240} – 1}{0.01} \right) \times (1 + 0.01)$

After solving this, the future value (A) comes out to approximately Rs 2.55 crore.

Explanation

With a higher monthly investment of Rs 15,000, and keeping other variables constant (i.e., the return rate of 12% per annum and a 20-year investment horizon), the future value grows proportionally larger. You will accumulate Rs 2.55 crore over the same period, which demonstrates how even a relatively small increase in monthly contributions can significantly boost the final corpus.

Why Time Horizon Matters

The most crucial element in the growth of your SIP investments is the time horizon. Longer investment periods allow the compounding effect to work its magic. In the initial years, the growth may seem slow, but as time progresses, the compounding begins to exponentially increase the value of your corpus. This is particularly noticeable in the last few years of your investment tenure.

For example:

At the end of 10 years, the Rs 10,000 monthly SIP at 12% annual return would only grow to approximately Rs 23 lakh.
However, by the end of 20 years, the value grows to Rs 1.7 crore, highlighting the dramatic impact of staying invested for a longer period.

Impact of Different Return Rates

The annual return rate assumed here is 12%, which is based on the historical performance of equity mutual funds. However, this rate is not guaranteed. The actual returns can vary based on the market conditions and the performance of the underlying investments.

If the return rate is:

10%, the Rs 10,000 SIP will grow to around Rs 1.38 crore, and the Rs 15,000 SIP will reach Rs 2.08 crore.
14%, the Rs 10,000 SIP will grow to around Rs 2.18 crore, and the Rs 15,000 SIP will reach Rs 3.27 crore.

Thus, the return rate plays a significant role in determining the final corpus.

Flexibility and Benefits of SIP

Low Entry Barrier: SIPs allow you to start investing with small amounts, making it accessible for most people.
Rupee Cost Averaging: By investing periodically, you purchase units at various market levels, lowering the average cost per unit.
Discipline: A SIP enforces a disciplined approach to investing by automating regular contributions.
Liquidity: Most SIP investments are in open-ended mutual funds, providing the flexibility to withdraw money when needed.

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