Systematic Investment Plan (SIP) is the most disciplined financial instrument for long-term wealth creation and inflation-beating. If you continue to invest ₹20,000 every month in a disciplined manner for 10 years (120 months), the effect of compounding turns your small investment into a huge fund.
Equity mutual funds have historically seen average annual returns of 12% to 15% over a period of 10 to 15 years. The total principal amount deposited from your pocket during 10 years will be ₹24,00,000 (Rs 24 lakh), but the amount received on maturity will be much more.
The returns received in SIP depend on market fluctuations. Below are comparative details of various return scenarios:
| Average Annual Return (%) | Your total invested amount | Estimated Profit (Wealth Gain) | Total Corpus after 10 years |
| 10% (Conservative – Hybrid Fund) | ₹24,00,000 | ₹17,30,865 | ₹41,30,865 (~₹41.3 lakh) |
| 12% (Moderate – Large/Flexi Cap Fund) | ₹24,00,000 | ₹22,46,782 | ₹46,46,782 (~₹46.5 lakh) |
| 15% (Aggressive – Mid/Small Cap Fund) | ₹24,00,000 | ₹31,73,149 | ₹55,73,149 (~₹55.7 lakh) |
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At 12% return: your money almost doubles ₹46.5 lakh In which only ₹22.46 lakh is added as returns.
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At 15% return: your total fund ₹55.7 lakh where the interest earned is even more than your original investment (132% net profit).
If you invest only in SIP amount every year with increase in your salary or income. 10% annual increase (Step-up SIP) Let’s do:
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Your total investment in 10 years will grow to approximately ₹38.25 lakh.
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At an average return of 12%, your total maturity fund grows to approximately ₹71.2 lakh Will be done.
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Same fund at 15% return ₹84.6 lakh Can cross the figure of Rs.
Tax provisions applicable on profits arising at the time of mutual fund redemption:
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As per budget rules, in a financial year on equity mutual funds Long Term Capital Gain (LTCG) up to ₹1.25 lakh is completely tax-free It happens.
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On net profit more than ₹1.25 lakh LTCG tax at the rate of 12.5% Is payable.
The real benefit of compounding is to continue SIP for 10 years instead of stopping it midway or withdrawing it in panic due to market downturn.