The Headline Number
A Rs 5,000 monthly SIP running for 20 years at a 12% annual return grows to approximately Rs 49.5 lakh. You will have contributed Rs 12 lakh of your own money. The remaining Rs 37.5 lakh is entirely compounding.
That single ratio, three parts growth to one part contribution, is the whole argument for starting early.
How It Builds, Year by Year
- Year 5: about Rs 4.1 lakh (contributed Rs 3 lakh)
- Year 10: about Rs 11.6 lakh (contributed Rs 6 lakh)
- Year 15: about Rs 25 lakh (contributed Rs 9 lakh)
- Year 20: about Rs 49.5 lakh (contributed Rs 12 lakh)
- Year 25: about Rs 94 lakh (contributed Rs 15 lakh)
Look at what happens between year 20 and year 25. Your contribution rises by Rs 3 lakh. Your corpus rises by Rs 44 lakh. Almost every rupee of that increase comes from money that was already invested.
Why the First Ten Years Feel Disappointing
At year five you have Rs 4.1 lakh against Rs 3 lakh contributed. The growth is real but unremarkable, and this is precisely when most people conclude the plan is not working and stop.
Compounding is back-loaded by definition. The corpus has to become large before its own returns start to exceed your monthly contribution. For a Rs 5,000 SIP at 12%, that crossover happens somewhere around year eleven. Everything before that point is groundwork.
What Different Return Assumptions Do
Twelve percent is a planning assumption, not a promise. Over 20 years on the same Rs 5,000:
- At 10%: about Rs 38 lakh
- At 12%: about Rs 49.5 lakh
- At 14%: about Rs 66 lakh
Plan at 10% if you want a margin of safety. If the outcome lands at 12%, you are pleasantly ahead rather than unpleasantly short.
The Change That Beats Picking a Better Fund
Increase the SIP by 10% every year, matching a typical salary increment. The same Rs 5,000 starting amount, stepped up annually at 12%, reaches roughly Rs 85 lakh in 20 years instead of Rs 49.5 lakh.
That is a Rs 35 lakh improvement from a change you make once and automate. No fund selection decision available to you will produce anything close to that.
The step-up is the highest leverage decision in the entire plan, and it takes five minutes to set up.
Calculate Your Own Number
The formula for a monthly SIP future value is:
FV = P × [((1 + i)^n − 1) ÷ i] × (1 + i)
Where P is the monthly amount, i is the monthly rate (annual rate divided by 12, as a decimal), and n is the number of months. For Rs 5,000 at 12% over 20 years: P = 5000, i = 0.01, n = 240.
Frequently Asked Questions
Is 12% a realistic return assumption?
For Indian equity over 20 years it is reasonable based on long term history, though not guaranteed. Plan at 10% for safety.
What if I miss some SIP instalments?
There is no penalty from the fund house. Your final corpus reduces roughly in proportion to what you skipped.
Should I increase my SIP every year?
Yes. A 10% annual step-up on a Rs 5,000 SIP adds roughly Rs 35 lakh over 20 years.
When does the corpus start growing faster than my contributions?
For this example, around year eleven. Before that the growth feels slow because the base is still small.
Which fund suits a 20 year SIP?
A diversified equity fund or a broad index fund. Over two decades the category matters far more than the specific scheme.
Value and Contra Funds: Rules, Limits and Deadlines
A side by side look at the options, with the trade offs made explicit.
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