A Systematic Investment Plan (SIP) is a popular way to invest in mutual funds, as it allows investors to park their savings in a mutual fund scheme of their choice. This helps investors not only commit to their long-term investment strategy but also take full advantage of compounding. For consistent individuals, compounding increases investments consistently over time, helping to create greater wealth over the years. Sometimes, combining produces amazing results, especially in the long run. In this article, let’s consider three scenarios to understand how time matters in compounding: a monthly SIP of Rs 4,000 for 20 years, a SIP of Rs 6,000 for 16 months and Rs 8,000 for 12 years.
Can you predict the difference in the result in all three cases at an expected annual return of 12 percent?
SIP Return Rates | Which will you choose: Rs 4,000 monthly investment for 20 years, Rs 6,000 for 16 years or Rs 8,000 for 12 years?
Scenario 1: Rs 4,000 monthly SIP for 20 years
Calculations show that at a return of 12 percent per annum, a monthly SIP of Rs 4,000 for 20 years (240 months) will result in a corpus of approximately Rs 39.97 lakh (principal of Rs 9.6 lakh and an expected return of Rs 30.37 lakh) .
Scenario 2: Rs 6,000 monthly SIP for 16 years
Similarly, for the same expected return, a monthly SIP of Rs 6,000 for 16 years (192 months) will accumulate wealth of Rs 34.88 lakh, as calculated (principal of Rs 11.52 lakh and expected return of Rs 23.36 lakh ).
Scenario 3: Rs 8,000 monthly SIP for 12 years
Similarly, for the same expected return, a monthly SIP of Rs 8,000 for 12 years (144 months) will result in a corpus of Rs 25.78 lakh, as calculated (principal of Rs 11.52 lakh and expected return of Rs 14.26 lakh) .
ALSO READ: Small SIP, Big Impact: Rs 2,500 monthly SIP for 30 years or Rs 25,000 for 12 years, which do you think works better?
Now, let’s look at these rates in detail (figures in rupees):
Power of Integration | Scenario 1
| Time (in years) | Investment | Come back | The Corpus |
| 1 | 48,000 | 3,237 | 51,237 |
| 2 | 96,000 | 12,973 | 1,08,973 |
| 3 | 1,44,000 | 30,031 | 1,74,031 |
| 4 | 1,92,000 | 55,339 | 2,47,339 |
| 5 | 2,40,000 | 89,945 | 3,29,945 |
| 6 | 2,88,000 | 1,35,028 | 4,23,028 |
| 7 | 3,36,000 | 1,91,916 | 5,27,916 |
| 8 | 3,84,000 | 2,62,106 | 6,46,106 |
| 9 | 4,32,000 | 3,47,286 | 7,79,286 |
| 10 | 4,80,000 | 4,49,356 | 9,29,356 |
| 11 | 5,28,000 | 5,70,459 | 10,98,459 |
| 12 | 5,76,000 | 7,13,009 | 12,89,009 |
| 13 | 6,24,000 | 8,79,725 | 15,03,725 |
| 14 | 6,72,000 | 10,73,672 | 17,45,672 |
| 15 | 7,20,000 | 12,98,304 | 20,18,304 |
| 16 | 7,68,000 | 15,57,513 | 23,25,513 |
| 17 | 8,16,000 | 18,55,683 | 26,71,683 |
| 18 | 8,64,000 | 21,97,757 | 30,61,757 |
| 19 | 9,12,000 | 25,89,302 | 35,01,302 |
| 20 | 9,60,000 | 30,36,592 | 39,96,592 |
Power of Integration | Scenario 2
| Time (in years) | Investment | Come back | The Corpus |
| 1 | 72,000 | 4,856 | 76,856 |
| 2 | 1,44,000 | 19,459 | 1,63,459 |
| 3 | 2,16,000 | 45,046 | 2,61,046 |
| 4 | 2,88,000 | 83,009 | 3,71,009 |
| 5 | 3,60,000 | 1,34,918 | 4,94,918 |
| 6 | 4,32,000 | 2,02,542 | 6,34,542 |
| 7 | 5,04,000 | 2,87,874 | 7,91,874 |
| 8 | 5,76,000 | 3,93,159 | 9,69,159 |
| 9 | 6,48,000 | 5,20,929 | 11,68,929 |
| 10 | 7,20,000 | 6,74,034 | 13,94,034 |
| 11 | 7,92,000 | 8,55,689 | 16,47,689 |
| 12 | 8,64,000 | 10,69,513 | 19,33,513 |
| 13 | 9,36,000 | 13,19,587 | 22,55,587 |
| 14 | 10,08,000 | 16,10,508 | 26,18,508 |
| 15 | 10,80,000 | 19,47,456 | 30,27,456 |
| 16 | 11,52,000 | 23,36,269 | 34,88,269 |
Power of Integration | Scenario 3
| Time (in years) | Investment | Come back | The Corpus |
| 1 | 96,000 | 6,475 | 1,02,475 |
| 2 | 1,92,000 | 25,946 | 2,17,946 |
| 3 | 2,88,000 | 60,061 | 3,48,061 |
| 4 | 3,84,000 | 1,10,679 | 4,94,679 |
| 5 | 4,80,000 | 1,79,891 | 6,59,891 |
| 6 | 5,76,000 | 2,70,056 | 8,46,056 |
| 7 | 6,72,000 | 3,83,832 | 10,55,832 |
| 8 | 7,68,000 | 5,24,213 | 12,92,213 |
| 9 | 8,64,000 | 6,94,572 | 15,58,572 |
| 10 | 9,60,000 | 8,98,713 | 18,58,713 |
| 11 | 10,56,000 | 11,40,919 | 21,96,919 |
| 12 | 11,52,000 | 14,26,017 | 25,78,017 |
SIP & Compounding | What is compounding and how does it work?
For simplicity, one can understand compounding in SIPs as ‘rolling back’, where initial returns are added to the principal to improve future returns, and so on.
Compounding helps generate a return on both the original principal and interest that accrues gradually over time, which contributes to compound growth over long periods of time.
This approach eliminates the need to invest in lump sums, making it easier for many people—especially high earners—to invest in their favorite mutual funds. Learn more about the power of integration