Chapter 2 of 12

The power of compounding and the SIP

8 min read

Compounding means earning returns on your earlier returns. In the first years it feels slow. Later it does most of the work.

₹10,000 growing at 12% a year (illustrative)

After 10 years: about ₹31,058.
After 20 years: about ₹96,463.
After 30 years: about ₹2,99,599.
The last ten years add more than the first twenty combined.

A handy shortcut is the rule of 72: divide 72 by the annual return to estimate how long money takes to double. At 12%, about six years.

What is a SIP?

A Systematic Investment Plan invests a fixed amount in a fund on a fixed date every month. You do not need a large sum to start, and you do not have to decide when the market is cheap.

₹5,000 a month at an assumed 12% a year

10 years: you invest ₹6,00,000 and it could grow to about ₹11.6 lakh.
20 years: you invest ₹12,00,000 and it could grow to about ₹50 lakh.
Starting ten years later and investing for only the last ten gives the ₹11.6 lakh outcome, not ₹50 lakh.

Rupee cost averaging

Because a SIP buys a fixed rupee amount, you receive more units when the price is low and fewer when it is high. Over time this smooths your average purchase price. It does not protect against losses, but it removes the pressure to time the market.

Try the cost-of-delay calculator Plan a SIP that grows with your income

Key takeaways

Time in the market is the biggest lever you control.
A SIP builds the habit and averages your purchase price.
Starting early matters more than starting big.

This content is for education only and is not investment or tax advice. Mutual fund investments are subject to market risks; read all scheme-related documents carefully.