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SIP Returns at 12% Annualised Return in Different Durations: Which SIP option would you choose? A Systematic Investment Plan (SIP) allows investors to direct their surplus cash steadily in their mutual fund scheme of choice. Its popularity stems from the fact that it doesn't force the investor to arrange a huge cash pile at once to start setting financial goals. This enables an investor to not only stay committed to their long-term investment strategy but also to maximise the benefit of compounding.

For the unversed, compounding grows investments exponentially over time, helping in creating substantial wealth over the years. At times, compounding yields surprising results, especially over longer periods.

In this article, let's compare three scenarios to understand how time matters in compounding. Can you guess which SIP option gives the highest return at an expected annualised rate of 12 per cent: Rs 5,000 for 15 years, Rs 10,000 for 7.5 years, or Rs 15,000 for 5 years?

Calculations show that at an annualised 12 per cent return, a monthly SIP of Rs 15,000 for 5 years (60 months) will lead to a corpus of approximately Rs 12.37 lakh (with a total investment of Rs 9 lakh and a return of about Rs 3.37 lakh). 

Similarly, at the same expected return, a monthly SIP of Rs 10,000 for 7.5 years (90 months) will accumulate wealth of around Rs 14.63 lakh, show calculations (a principal of Rs 9 lakh and an expected return of Rs 5.63 lakh).

ALSO READ: Power of Rs 7,000 SIP: How can you generate Rs 5 crore corpus with just Rs 7,000 monthly investment?

A monthly SIP of Rs 5,000 for 15 years (180 months) will lead to a corpus of around Rs 25.23 lakh (a principal of Rs 9 lakh and a return of Rs 16.23 lakh).

Now, let's look at these estimates in detail (figures in rupees): 

Simply put, compounding in SIPs means earning ‘returns on returns’. The interest you earn gets added to your investment, and so on.

Over longer periods of time, this combined amount keeps growing, helping your money multiply faster.

This power of compounding leads to exponential growth, especially in long-term SIPs. Read more on the power of compounding

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