Magic of Compounding: Monthly SIP of ₹12,000 in This Mutual Fund Would Have Grown to ₹1 Crore Today

The concept of compounding is often called the “eighth wonder of the world” for a reason. It allows wealth to grow exponentially over time, turning small, consistent investments into substantial sums. In this article, we’ll illustrate how a monthly SIP (Systematic Investment Plan) of ₹12,000, invested in a well-performing mutual fund, has grown to an impressive ₹1 crore today.

Let’s dive into the mechanics of compounding and why SIPs are a powerful tool for building wealth.

How Compounding Works in SIPs

Compounding means earning returns on both the principal (initial investment) and the returns accumulated over time. The longer you stay invested, the more your money has the potential to grow. In the case of SIPs, small monthly contributions benefit from compounding, as each installment adds to the fund’s total value, which then compounds over time.

For example, if an investor had invested ₹12,000 every month in a mutual fund since its launch (let’s assume around 15 years ago), the value could have snowballed to ₹1 crore today, thanks to the dual benefits of rupee cost averaging and compounding.

Key Reasons to Invest in SIPs

Power of Compounding Compounding essentially generates returns on returns. With SIPs, every contribution grows over time, making compounding more powerful the longer you stay invested.
Affordable and Disciplined Investment With SIPs, you can start investing with as little as ₹500-₹1000, making it accessible to people across various income brackets. It also instills financial discipline, as fixed monthly contributions are automatically deducted, encouraging consistent saving.
Rupee Cost Averaging SIPs take advantage of rupee cost averaging by investing fixed amounts regularly, which helps mitigate the effects of market volatility. Over time, this can result in a lower average cost per unit, enhancing returns in the long run.
Goal-Based Investing SIPs are excellent for long-term financial goals such as retirement, children’s education, or buying a home. They allow for systematic growth over a period, aligning with specific financial objectives.

Example Calculation: Reaching ₹1 Crore with a Monthly SIP of ₹12,000

Let’s consider a hypothetical example where a monthly SIP of ₹12,000 was invested in a mutual fund with an average annual return of around 12%. Over a period of approximately 15-16 years, this SIP could grow to ₹1 crore due to compounding.

Investment Amount: ₹12,000 per month
Investment Period: 15-16 years
Average Annual Return: ~12%
Final Amount: Approximately ₹1 crore

This substantial growth is a testament to the magic of compounding, combined with disciplined, long-term investing.

How to Start a Mutual Fund SIP

Identify Your Financial Goals
Set clear goals for your investments—whether it’s wealth creation, retirement planning, or saving for a major purchase.
Research Funds Based on Risk Tolerance
Choose funds that match your risk profile. For long-term wealth generation, equity mutual funds may be more suitable due to their higher growth potential.
Select Your SIP Amount and Frequency
Decide on a comfortable monthly amount. SIPs offer flexibility to start with a low amount and gradually increase contributions as income grows.
Use the Best SIP Calculator
To estimate how much your SIP can grow, use an SIP calculator. This tool helps you set realistic goals by calculating potential returns based on investment amount, tenure, and expected rate of return.
Open an Account and Start Investing
Complete your KYC, choose a fund house, and start a SIP through your bank or investment platform. Automated monthly deductions ensure that contributions are made regularly without manual effort.

Disclaimer

Mutual funds are subject to market risks, and past performance is not a guarantee of future results. Please read all scheme-related documents carefully before investing. Consult a financial advisor to ensure your investment choices align with your financial goals and risk tolerance.