SIP vs Inflation: Your Rs 20,000 SIP investment can generate Rs 3.41 crore corpus in 25 years, but what will be its real value then? (Calculation tables inside)

SIP vs Inflation: The charts of long-term SIP returns can impress any investors as they show a small amount turning into a giant corpus. E.g., a Rs 10,000 monthly SIP investment at a 12 per cent annualised return can generate a Rs 92 lakh corpus in 20 years, Rs 3.09 crore in 30 years, and Rs 9.80 crore in 40 years.

But will the value of Rs 9.80 crore 40 years from now be the same as it is today?

No, if it is adjusted against inflation, the amount may not be large enough.

It may not be able to help you achieve your financial goals at that time.

How inflation plays a role in your investment growth.

How much do you actually need to create a corpus that will be relevant in the long term, and what will be the value of Rs 3.41 crore in 25 years created from a Rs 20,000 monthly SIP investment?

Get answers to these questions in this write-up.

Relation between investment return and inflation

Suppose you have an investment where the annualised rate of return is 12 per cent and average inflation is 6 per cent, what is the actual return that you will get?

Will it be 12 per cent-6 per cent= 6 per cent

No, it will be lower than 6 per cent and definitely way below 12 per cent. To calculate the adjusted return, we apply the formula of- 

Real rate of return (%)= (1+rate of return)/(1+inflation rate)-1X100

So, if the annualised return is 12 per cent and average inflation is 6 per cent, the real rate of return will be 5.66 per cent.

By that logic, see the references: how annualised returns of 7 per cent to 25 per cent will give actual returns at a 6 per cent average inflation.

Investment Return vs Inflation chart

Real value of your returns in 10 years (Rs 5,000-Rs 100,000 monthly SIP investment) 

If you invest Rs 5,000 to Rs 1,00,000 monthly in an SIP and get a 12 per cent annualised return at a time when the average inflation is 6 per cent, here is the table of the present value of investment and real value of returns in different timeframes. 

Real value of your returns in 20 years (Rs 5,000-Rs 100,000 monthly SIP investment)

Real value of your returns in 30 years (Rs 5,000-Rs 100,000 monthly SIP investment)

Value of Rs 20,000 SIP in 25 years

If you invest Rs 20,000 in a mutual fund SIP where you get a 12 per cent annualised return, your investment in 25 years will be Rs 60,00,000, and the estimated corpus created will be Rs 3,40,44,131. 

However, if we adjust this amount against a 6 per cent average inflation, the value of Rs 3,40,44,131 will be Rs 1,29,36,296.02.

(Disclaimer: These are projections and not financial advice. Do your own due diligence or consult an expert for financial planning.)