10K monthly SIP grows to ₹50 lakh in 12 years

Business:If you invest small amounts consistently over a long period, it can become a large amount. The returns earned over a long period are generally much higher than the returns earned over a short period. This is due to compounding.

This happens because the returns earned in the first few years get added to the principal. Hence, the returns are paid on this increased amount, giving an additional boost to returns in the later years as compared to the initial years.

We demonstrate the power of compounding here by choosing a mutual fund scheme: Parag Parikh Flexi Cap Fund.

If you were investing ₹10,000 every month in this scheme for the last one year, by investing ₹1.20 lakh it would have become ₹1.25 lakh, thus giving an annual return of 8.91 per cent.

Moreover, if a person invests ₹10,000 every month in this mutual fund for three years, the investment grows to ₹4.91 lakh, while the total investment is ₹3.6 lakh. This means a great return of 21.38 percent.

In five years, the total investment of ₹6 lakh (at the rate of ₹10,000 every month) grows to ₹10 lakh, thus giving a return of 20.76 percent per annum.

Long Term

On the other hand, if a person continuously invests ₹10,000 in this scheme through Systematic Investment Plan (SIP) for a decade, the total investment grows to ₹33.82 lakh by investing ₹12 lakh. During this period, this scheme has given a return of 19.68 percent annually.