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Power of Compounding: Mutual funds with SIPs enable disciplined investing. Let’s understand the basic math behind the compounding power with a Rs 5,000 SIP.
Though it seems a nominal amount, thanks to the power of compounding and value investing, it can help you to build a good corpus in the next 10-15 years.
Power Of Compounding: Mutual funds combined with the systematic investment plan (SIPs) are a great investment tool that allows even naive investors to invest in the stock market in a disciplined manner. By pooling the money of investors, MFs headed by professional managers invest in the market to beat the benchmark and make profits.
However, the real benefit of the stock market comes with compounding. Investing is different from speculation and requires a long-term approach. As Albert Einstein once famously quipped, “compound interest is the eighth wonder of the world. He who understands it, earns it…he who doesn’t…pays it”.
The question investors often ask, “How much a monthly SIP of Rs 5000 be in 5, 10, and 15 years?”
Though it seems a nominal amount, thanks to the power of compounding and value investing, it can help you to build a good corpus in the next 10-15 years.
The Power Of Compounding with a Rs 5,000 SIP
Let’s understand the basic math behind the compounding power with a Rs 5,000 SIP.
We’ve taken an average annual return of 12 per cent to calculate the following estimates.
So, let’s see for 5 years.
With the Rs 5,000 monthly SIP, you would put a total amount of Rs 3 lakh in the duration of 5 years (60 x Rs 5,000 = Rs 3,00,000). With the assumed rate of 12 per cent, it would convert into Rs 4,12,318 in the 5 years, offering a net return of 27.24 per cent.
Now, let’s see for 10 years.
In the span of 10 years, we’ve invested a total amount of Rs 6,00,000. Our estimated return of Rs 5,000 monthly SIP would be Rs 11,61,695.
Let’s see the magic of compounding in 15 years.
The total investment of ours in 15 years would be Rs 9,00,000. The total return of Rs 5,000 monthly SIP would be Rs 25,36,401.
Assuming an average annual return of 12%, here’s how much your monthly SIP of Rs 5,000 can grow over time:
|
Duration |
Total Investment | Estimated Value @12% | Wealth Gained |
| 5 Years | Rs 3,00,000 | Rs 4.06 lakh | Rs 1.06 lakh |
| 10 Years | Rs 6,00,000 | Rs 11.61 lakh | Rs 5.61 lakh |
| 15 Years | Rs 9,00,000 | Rs 22.93 lakh | Rs 13.93 lakh |
The returns mentioned above are rough estimates based on assumed annual returns and historical trends. Actual results may vary depending on market conditions and fund performance.
Disclaimer: The views and investment tips by experts in this News18.com report are their own and not those of the website or its management. Users are advised to check with certified experts before taking any investment decisions.
Varun Yadav is a Sub Editor at News18 Business Digital. He writes articles on markets, personal finance, technology, and more. He completed his post-graduation diploma in English Journalism from the Indian Inst…Read More
Varun Yadav is a Sub Editor at News18 Business Digital. He writes articles on markets, personal finance, technology, and more. He completed his post-graduation diploma in English Journalism from the Indian Inst… Read More
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