In today’s fast-moving world, planning for long-term wealth creation becomes vital. Investing in mutual funds through Systematic Investment Plans (SIPs) offers a structured approach to accumulating savings gradually yet meaningfully over time. By staying committed to investing ₹20,000 every month, one can build a sizeable corpus in 15 years. 

This article illustrates how staying consistent with SIP contributions can help grow ₹20,000 monthly savings to Rs 1.5 crores over 15 years. 

The Power of Compounding

The power of compounding is the primary force enabling a SIP of ₹20,000 per month to snowball into ₹1.5 crores in 15 years. Compounding simply means allowing the returns generated from your investments to start earning returns themselves. It creates a multiplier effect, accelerating portfolio growth exponentially rather than linearly.

In the case of a SIP, this means that not only does your principal investment amount contribute to returns, but even the interest, dividends, or capital gains earned start chipping in. 

The key is staying invested for extended periods, as we’ve assumed in the 15-year case. This allows compounding to work its magic, as gains earned get reinvested to earn further gains year after year, which really starts accumulating. Compounding can transform regular small SIPs into seven-figure corpus amounts with sufficient time.

SIP Calculation Example

Let’s understand with an easy example how regular monthly SIPs can accumulate a large corpus over long durations.

If you start a SIP of Rs 20,000 invested in an equity mutual fund delivering 12% returns annually, here is how it can grow in 15 years.

Monthly Investment: Rs 20,000

Investment Period: 15 years

Expected Rate of Return: 12% annually

Using the SIP formula, we calculate the future value of your investment:

FV = P [ (1+i)^n-1 ] * (1+i)/i 

Where:

FV = Future value (the amount you get at maturity)

P = Amount you invest through SIP

i = Compounded rate of return

n = Investment duration in months

Using the standard SIP formula, the future value of your investment after 15 years works out to Rs 1.5 crores.

This calculation shows the staggering returns possible simply by sticking to small, regular investments month after month for an extended period. The assumption is that all gains are reinvested rather than withdrawn prematurely.

While 12% returns are not guaranteed and serve only as an illustration, this example demonstrates the twin impact of giving your investments sufficient time and letting compound gains quietly in the background. 

Benefits of Long-Term Investing

One of the biggest rewards of long-term SIPs is mitigating market volatility through rupee cost averaging. By investing Rs 20,000 monthly, regardless of market difficulties, you automatically buy more mutual investment fund units when prices dip lower and fewer when they cost more. This reduces your average entry price compared to lump sum purchases exposed to prevailing valuations.

Another valuable aspect is enforcing financial discipline. SIPs, by directly channelling funds towards investments, foster a culture of regular saving rather than tempting discretionary splurges. This structured approach to wealth creation eventually pays rich dividends.

Lastly, the long-term view allows compounding to work its magic despite interim fluctuations. By spanning multiple market cycles, investors give their SIPs sufficient runway for underlying fund growth and reinvested gains to multiply portfolio values. Those who withstand interim turbulence often realise sizable outcomes from persisting over extended horizons.

Factors Influencing Returns

While the power of SIPs is evident from the illustrative example, actual returns depend on some variables:

• Rate of Return: The assumed average return of 12% is taken for demonstration purposes. Underlying fund performance aligns closely with broader stock market movements, which vary.

• Inflation: Over overextended timeframes, inflation can slowly erode purchasing power. However, by delivering healthy investing returns, SIPs help offset inflationary effects to aid real growth.

• Fund Selection: Choosing reputed funds with proven long-term records of outpacing benchmarks improves outcomes significantly compared to betting on untested options.

• Investor Discipline: Premature withdrawals before maturity periods can severely inhibit corpus building. Persisting with SIPs through ups and downs allows compounding to multiply gains over time.

Conclusion

While projections assume steady returns, equity investments carry some inherent volatility. However, investing in diversified, well-performing funds over long horizons helps mitigate interim fluctuations.

Even modest SIPs can reap huge rewards by cultivating financial discipline and long-term patience. Just ₹20,000 invested monthly in funds delivering 12% over 15 years harnesses the immense power of compounding to grow savings to ₹1.5 crores potentially. Staying invested through difficulties allows compounding to transform regular savings into fortunes.