Small SIP vs. Large SIP: Which Strategy Builds More Wealth?
Building wealth is more like a marathon than a sprint. It requires a long-term strategy, patience, and consistency. The longer you stay invested, the more you benefit from the “power of compounding.”
Systematic Investment Plans (SIPs) in mutual funds have become a favorite tool for Indian investors to grow their wealth. By investing a fixed amount every month, you can build a large corpus over time. While the power of compounding and rupee cost averaging help even small investments grow, many investors still wonder: Is it better to invest a little for a long time or a lot for a short time?
Let’s compare two different SIP scenarios to find the answer.
Comparing the Scenarios: 25 Years vs. 5 Years
For this comparison, we will assume an average annual return of 12%, which is common for long-term equity mutual funds in India.
Scenario 1: ₹2,000 per month for 25 years
- Monthly SIP: ₹2,000
- Expected Return: 12%
- Total Amount Invested: ₹6,00,000
- Estimated Capital Gains: ₹31,95,270
- Total Value: ₹37,95,270
Scenario 2: ₹20,000 per month for 5 years
- Monthly SIP: ₹20,000
- Expected Return: 12%
- Total Amount Invested: ₹12,00,000
- Estimated Capital Gains: ₹4,49,727
- Total Value: ₹16,49,727
Key Takeaways: Why Time Matters More Than Money
The numbers show a surprising result. Even though you invest double the money in the 5-year plan (₹12 lakh vs. ₹6 lakh), the 25 year plan results in a much larger corpus. Here is why:
- Compounding Rewards Time: SIPs reward “time in the market.” A small, consistent investment over 25 years can easily outperform a large investment made over a short period.
- Overcoming Volatility: Short term SIPs are more affected by market ups and downs. Long-term SIPs help smooth out these fluctuations, making your investment more stable.
- The Power of Starting Early: The biggest lesson here is to start your investment journey as soon as possible. Even a small amount can grow into a significant fortune if given enough time.
- The 5-Year Limit: A five-year period is simply not long enough for compounding to trigger exponential growth.
Investing is not just about how much you put in, but how long you let it grow. By starting early and staying consistent, you can turn modest savings into substantial wealth.
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