“Compound interest is the eighth wonder of the world. He who understands it earns it… he who doesn’t… pays it.” - Albert Einstein
this is a great calculator with chart - https://www.hdfclife.com/financial-tools-calculators/compound-interest-calculator
Lets say Ajay starts a modest SIP of Rs 4000 per month. He lives in bangalore which is a high cost city.
for the next 5 years, he pays the same Rs 4000 / month even if his salary increases. He expects to withdraw this amount at the age of 70.
He will stop paying any amount after the 5th year and let the compounding do its magic.
So, Rs 4000 / month SIP, 13% annual returns, 70-23 = 47 years of investment time, 5 years of SIP payments.
After 47 years, his investment of ₹ 2.40 lakhs will grow to ₹ 7.74 cr (at 13% pa).
If he has a house paid off by then, hopefully 7.74Cr in 47 years would be worth something.
Rahul is currently paying the home loan of his fancy apartment and a new car. His wife doesnt work anymore and after paying for the school fees of 2 kids, he is left with Rs 30k / month.
He currently has a Fixed Deposit of Rs 10 lakhs fetching him a measly 6% per annum. He never invested in stock market because of his father's beliefs.
So now he wants to start an SIP of Rs 10k per month and put a lumpsum deposit of Rs 10 lakhs. this 10k / month SIP will be payed for 20 years.
He will encash at age 60 (20 years investment duration).
So at 13% pa, at the age of 60, he will get 2.47Cr. had he NOT put the initial deposit of Rs 10 lakhs, he would be looking at just 1.15Cr.
He sends all his savings to Bihar and his family spends almost all of it. They have a bank account but don't have any FDs. Gold and Village land is the only savings they have.
Mukesh learns a lot by reading Hindi Business newspapers and ferrying customers near dalal street. He dares to ask questions to his riders about mutual funds and other savings options. Some of his riders give genuine advice, some just laugh at him.
Mukesh also knows that without english education and good quality schooling, his son will meet the same fate as him. So he decides to setup a modest SIP of just Rs 1000 / month in his son's name.
He decides that he will pay these SIPs till his son is 18 years of age and then let his son pay those EMIs for the rest of his life.
With no initial deposit, Rs 1000 / month SIP, 13% pa, 18 years payments, his corpus grew to 8.63 lakhs after 18 years. Not a lot of amount.
His son stopped the SIP payments at age 18 and soon forgot about his father's investments.
After many years, at the age of 60, Mukesh's son rediscovered his father's SIP investment which was stopped when he turned 18. This corpus has now grown to 19.71Cr (at 13% pa). He couldn't believe his eyes.
Had he continued the SIP payments from age 18 to 60 of just Rs 1000 / month, he would be looking at Rs 21.83Cr. Not a lot of increase.
this is a great calculator with chart - https://www.hdfclife.com/financial-tools-calculators/compound-interest-calculator
Example One - Ajay, 23 years old, just started a job of 40k rs per month, no previous savings or investments.
Lets say Ajay starts a modest SIP of Rs 4000 per month. He lives in bangalore which is a high cost city.
for the next 5 years, he pays the same Rs 4000 / month even if his salary increases. He expects to withdraw this amount at the age of 70.
He will stop paying any amount after the 5th year and let the compounding do its magic.
So, Rs 4000 / month SIP, 13% annual returns, 70-23 = 47 years of investment time, 5 years of SIP payments.
After 47 years, his investment of ₹ 2.40 lakhs will grow to ₹ 7.74 cr (at 13% pa).
If he has a house paid off by then, hopefully 7.74Cr in 47 years would be worth something.
Example Two - Rahul (not Gandhi lol), 40 years old, Software Developer, earns 25 LPA, married and two kids.
Rahul is currently paying the home loan of his fancy apartment and a new car. His wife doesnt work anymore and after paying for the school fees of 2 kids, he is left with Rs 30k / month.
He currently has a Fixed Deposit of Rs 10 lakhs fetching him a measly 6% per annum. He never invested in stock market because of his father's beliefs.
So now he wants to start an SIP of Rs 10k per month and put a lumpsum deposit of Rs 10 lakhs. this 10k / month SIP will be payed for 20 years.
He will encash at age 60 (20 years investment duration).
So at 13% pa, at the age of 60, he will get 2.47Cr. had he NOT put the initial deposit of Rs 10 lakhs, he would be looking at just 1.15Cr.
Example 3 - Mukesh, 21, is a auto driver in Mumbai. He earns Rs 40k / month. His family is in Bihar and is recently blessed with a baby boy.
He sends all his savings to Bihar and his family spends almost all of it. They have a bank account but don't have any FDs. Gold and Village land is the only savings they have.
Mukesh learns a lot by reading Hindi Business newspapers and ferrying customers near dalal street. He dares to ask questions to his riders about mutual funds and other savings options. Some of his riders give genuine advice, some just laugh at him.
Mukesh also knows that without english education and good quality schooling, his son will meet the same fate as him. So he decides to setup a modest SIP of just Rs 1000 / month in his son's name.
He decides that he will pay these SIPs till his son is 18 years of age and then let his son pay those EMIs for the rest of his life.
With no initial deposit, Rs 1000 / month SIP, 13% pa, 18 years payments, his corpus grew to 8.63 lakhs after 18 years. Not a lot of amount.
His son stopped the SIP payments at age 18 and soon forgot about his father's investments.
After many years, at the age of 60, Mukesh's son rediscovered his father's SIP investment which was stopped when he turned 18. This corpus has now grown to 19.71Cr (at 13% pa). He couldn't believe his eyes.
Had he continued the SIP payments from age 18 to 60 of just Rs 1000 / month, he would be looking at Rs 21.83Cr. Not a lot of increase.