look news india
Often people assume that to create a big fund in the stock market or mutual fund, a lump sum capital of lakhs of rupees is required. The reality is that in the long run, the continuity and time frame of investment matters more than the amount of investment. Just ₹3,000 (ie about ₹100 per day) saved disciplinedly every month can grow manifold in the long run through the effect of compounding.
Systematic Investment Plan (SIP) in mutual funds gives small investors an opportunity to take advantage of market volatility with financial discipline. If an investor continues to invest regularly in equity mutual funds with the expectation of historically average 12% annual returns, one can build a strong corpus within 10 to 25 years.
Based on a potential average annual return of 12%, the progress over different time periods of a monthly investment of ₹3,000 works out as follows:
| time period (years) | Total amount invested (₹) | Estimated Wealth Gain (₹) | Total Potential Maturity Fund (₹) |
| 10 years | ₹3,60,000 | ₹3,37,000 | ₹6.97 lakh |
| 15 years | ₹5,40,000 | ₹9,74,000 | ₹15.14 lakh |
| 20 years | ₹7,20,000 | ₹22,78,000 | ₹29.98 lakh |
| 25 years | ₹9,00,000 | ₹47,93,000 | ₹56.93 lakh |
It is clear from this table that the total investment almost doubles in the first 10 years, but by the time the 25th year is reached, the total investment returns almost 6 times.
The total amount that goes out of the investor’s pocket in the first 10 years is ₹3,60,000, plus a profit of approximately ₹3.37 lakh, taking the total fund to ₹6.97 lakh. In this phase the principal invested and returns remain in almost equal proportions.
As the tenure stretches to 15 years (180 months), the total investment is ₹5,40,000, while the fund directly invests at ₹15.14 lakh. From here the pace of returns starts outpacing the principal amount. This period is considered suitable for children’s higher education or to meet any medium-term financial goal.
Real wealth creation starts after 15 years. The total corpus in 20 years is ₹7,20,000, but the fund grows to around ₹30 lakh (₹29.98 lakh).
The total investment over 25 years is just ₹9 lakh, while the potential maturity corpus comes to ₹56.93 lakh (approximately ₹57 lakh). In this ₹57 lakh fund, the money lost by investors from investors’ pocket is only ₹9 lakh, while ₹47.93 lakh is only the share of compounding and market returns. It is considered to be the real power of compounding, called the ‘eighth wonder of the world’ by Albert Einstein.
If an investor increases his SIP by 10% every year as his income increases (Step-up SIP):
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₹3,000 per month for the first year
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₹3,300 per month in the second year
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₹3,630 per month for the third year
With this simple 10% step-up, this same fund can cross the Rs 1 crore mark in 25 years. Growing small savings regularly is the most effective way to beat inflation.