Investment Planning: Let’s assume you have 3 investments to make—a Rs 10,000 monthly SIP; an additional Rs 5 lakh one-time investment to SIP; and stepping up the Rs 10,000 SIP by 5 per cent yearly along with the Rs 5 lakh upfront investment, all 3 for 30 years. The first option is the easiest and can help you generate an over Rs 3.08 crore corpus at 12 per cent annualised growth in 30 years. The second option requires Rs 5 lakh extra from your pocket, but the estimated corpus will jump to an estimated Rs 4.58 crore.
The option requires an additional investment of Rs 4,372,662, but it can take the corpus to Rs 6.17 crore.
With just Rs 48,72,662 extra investment compared to the first option, you may generate an additional corpus of over Rs 3.09 crore.
This is the power of compounding.
If you let your investment grow, with an addition of just a few lakh investment, your estimated corpus may grow not just by a few lakhs, but by a few crores.
Know how 3 options may work for you.
Power of compounding from long-term investment
In compound growth of your investment, your growth of one cycle is credited to the growth of the previous cycle.
When it happens year by year, the corpus starts growing faster.
Let’s take the example of a Rs 2,50,000 lump sum investment in a mutual fund scheme where the annualised return is 12 per cent, let’s see how the investment can grow in 10, 20, 30, and 40 years.
In 10 years, estimated capital gains will be Rs 5,26,462, and the estimated corpus will be Rs 7,76,462.
In 20 years, estimated capital gains will be Rs 2,161,573, and the estimated corpus will be Rs 24,11,573.
In 30 years, estimated capital gains will be Rs 72,39,981, and the estimated corpus will be Rs 74,89,981.
In 40 years, estimated capital gains will be Rs 2,30,12,743, and the estimated corpus will be Rs 2,32,62,743.
Calculations for story
Our calculation will have 3 investment scenarios:
Scenario 1—When you make an Rs 10,000 monthly SIP investment for 30 years
Scenario 2—When you also make an upfront lump sum investment of Rs 5 lakh
Scenario 3—Along with the upfront investment, when you also step up your SIP investment by 5 per cent annually
We will show that with each additional step, how much extra corpus you may generate in 30 years.
Corpus from Rs 10,000 monthly SIP investment
In 30 years, the total investment will be Rs 36,00,000, estimated capital gains will be Rs 2,72,09,732, and the estimated corpus will be Rs 3,08,09,732.
Corpus from Rs 5 lakh lump sum, Rs 10,000 SIP investment
A Rs 5 lakh investment will give an estimated capital gains of Rs 1,44,79,961 and the estimated corpus of Rs 1,49,79,961 in 30 years.
It means with a total investment of Rs 41,00,000, the total estimated corpus will be Rs 4,57,89,693.
Corpus from Rs 5 lakh lump sum, Rs 10,000 step up SIP investment
In an Rs 10,000 step up SIP, the total investment in 30 years will be Rs 79,72,662, estimated capital gains will be Rs 3,87,85,512, and the estimated corpus will be Rs 4,67,58,174.
It means with an Rs 84,72,662 overall investment, your estimated corpus will be Rs 6,17,38,135.
Extra earnings when you choose Scenario 2 instead of Scenario 1
Rs 1,44,79,961
Extra earnings when you choose Scenario 3 instead of Scenario 1
Rs 2,24,55,741
Extra earnings when you choose Scenario 3 instead of Option 2
Rs 1,15,75,780
Conclusion
In all 3 conditions, you can see how any additional investment can play a key role in transforming your retirement corpus from small to large in the long run. If investment amounts are higher, gains can also be larger.
(Disclaimer: This is not investment advice. Do your own due diligence or consult an expert for financial planning.)
