Power of compounding: How can a small SIP help you amass millions in corpus?
A modest SIP can serve as a stepping stone toward amassing a significant corpus, particularly when coupled with time and a sound investment strategy.
Small drops of water, though individually insignificant, can accumulate over time to fill vast oceans. Consistent small efforts can result in significant accomplishments. Similar to how tiny drops consistently fill an ocean, small daily actions can bring about substantial changes over time.
This analogy finds its best application and understanding in the context of mutual fund investments, where money is systematically invested through regular systematic investment plans (SIPs) over a period, such as two to three decades, resulting in the accumulation of a fortune worth millions.
Consider this situation. What if you started investing small amounts, like ₹1000, every month in a mutual fund of your preference, whether it's large-cap, mid-cap, small-cap, or even thematic funds if you're young and open to taking risks? Alternatively, those interested in tracking the performance of a specific index, could opt for an index fund and continue investing small instalments regularly in that fund.
Benefiting from the compounding effect
Investing small amounts such as ₹1000 each month mirrors the concept of small drops of water. Although each contribution may appear minor, they amass over time, akin to those drops filling an ocean.
In the long run, your investments reap the rewards of compounding. This entails earning returns not only on your initial investment but also on the returns generated previously. Therefore, even modest monthly contributions can experience substantial growth over time as a result of compounding. This concept is best illustrated with the following example.
SIP amount (in Rs) | Investment tenure (in years) | Name of the fund | Type of fund | 10-year returns (in %) | Maturity Amount (in Rs) |
1000 | 30 | Nippon India Large Cap Fund | Large-cap fund | 18.11 | 1,47,12,334 |
1000 | 30 | Baroda BNP Paribas Large Cap Fund | Large-cap fund | 17.29 | 1,20,69,354 |
1000 | 30 | Mirae Asset Large Cap Fund | Large-cap fund | 17.17 | 1,17,26,302 |
1000 | 30 | Canara Robeco Bluechip Equity Fund | Large-cap fund | 16.51 | 1,00,13,410 |
1000 | 30 | Motilal Oswal Midcap Fund | Mid-cap fund | 23.29 | 5,20,60,234 |
1000 | 30 | Tata Mid Cap Growth Fund | Mid-cap fund | 21.78 | 3,63,49,718 |
1000 | 30 | HSBC Mid Cap Fund | Mid-cap fund | 21.64 | 3,51,00,026 |
1000 | 30 | SBI Magnum Midcap Fund | Mid-cap fund | 20.34 | 2,54,07,492 |
1000 | 30 | Nippon India Small Cap Fund | Small-cap fund | 28.01 | 17,75,08,105 |
1000 | 30 | SBI Small Cap Fund | Small-cap fund | 27.01 | 13,71,66,457 |
1000 | 30 | Axis Small Cap Fund | Small-cap fund | 24.28 | 6,82,55,009 |
1000 | 30 | HDFC Small Cap Fund | Small-cap fund | 21.94 | 3,78,34,083 |
1000 | 30 | ICICI Prudential Nifty Next 50 Index Fund | Index fund | 16.71 | 1,05,02,907 |
1000 | 30 | LIC MF Nifty Next 50 Index Fund | Index fund | 16.62 | 1,02,79,600 |
1000 | 30 | Sundaram Nifty 100 Equal Weight Fund | Thematic fund | 13.37 | 48,09,115 |
| Source: AMFI (As of March 21, 2024) | |||||
The crux of success with SIPs lies in discipline and consistency, much like the steady accumulation of tiny drops. Consistently investing a fixed amount, irrespective of market conditions, fosters financial discipline.
In summary, SIPs represent a potent method for investing in mutual funds, particularly for individuals commencing their investment journey at a young age. Through consistent contributions of small amounts, you can harness the potential of compounding and cultivating your wealth over the long haul, mirroring the gradual accumulation of small drops filling an ocean.
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Business NewsMutual FundsPower of compounding: How can a small SIP help you amass millions in corpus?
First Published:26 Mar 2024, 02:01 PM IST
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