Starting SIP at Age 30 with ₹5,000 or SIP at Age 40 with ₹20,000: Which Will Give Higher Corpus at Retirement?

Systematic Investment Plans (SIPs) have emerged as an effective tool for wealth creation. With consistent investments over time, SIPs help individuals build a corpus to achieve various financial goals, including retirement. The beauty of SIPs lies in their compounding power, where the earlier you start, the greater the impact on your investment. But how much difference does it make if you start investing at different ages?

In this article, we will look at 2 scenarios: one where an individual starts investing at the age of 30, and another where the person starts at the age of 40. Both individuals invest regularly, but the difference lies in their initial investment age. Let’s explore how these factors play out in the long run.

Scenario 1: Starting SIP at Age 30

Age plays a crucial role when it comes to wealth creation through SIPs. In this scenario, an individual begins their SIP at the age of 30, contributing ₹5,000 per month for 30 years, with an expected annual return of 12%.

• SIP Amount: ₹5,000
  
• Duration: 30 years
  
• Expected Rate of Return: 12%

After 30 years, the total value of the investment would be:

• Invested Amount: ₹18,00,000 (₹5,000 per month for 30 years)
  
• Estimated Returns: ₹1,58,49,569
  
• Total Corpus: ₹1,76,49,569

Starting early at 30 allows the investment to compound over a longer period. Even with a relatively modest monthly contribution of ₹5,000, the power of compounding helps the investment grow into a significant sum.

Scenario 2: Starting SIP at Age 40

In this scenario, the individual begins their SIP at the age of 40, contributing ₹20,000 per month for the next 20 years. The expected annual return remains at 12%.

• SIP Amount: ₹20,000
  
• Duration: 20 years
  
• Expected Rate of Return: 12%
  

After 20 years, the total value of the investment would be:

• Invested Amount: ₹48,00,000 (₹20,000 per month for 20 years)
  
• Estimated Returns: ₹1,51,82,958
  
• Total Corpus: ₹1,99,82,958

Although the individual is investing a higher monthly amount, the shorter investment horizon means that the power of compounding works for a limited time. This results in a slightly higher corpus, but the difference compared to the 30-year-old investor is not as significant as it could have been with a longer investment period.

Key Takeaways

1. The Power of Time: The individual who starts at age 30, despite investing a smaller amount, benefits from a longer compounding period, resulting in a larger corpus at retirement.

2. Contribution vs. Duration: While higher contributions (₹20,000) lead to a larger corpus, the person who starts at age 30 enjoys the benefits of compounding over 10 extra years, making a substantial difference.

3. Importance of Starting Early: This comparison illustrates the impact of starting SIPs early. Even small contributions have the potential to grow over time.

Conclusion

Both scenarios demonstrate how SIPs are a great tool for long-term wealth creation, but starting early is crucial for maximising the benefits of compounding. Whether you’re looking to save for retirement, build a corpus for a major life event, or simply secure your financial future, starting early with SIPs can help you achieve your goals with greater ease.

No matter your age, investing regularly through SIPs can pave the way for a secure financial future. But if you’re in your 30s, there’s an undeniable advantage in starting sooner to build a retirement corpus by the time you retire.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. This does not constitute a personal recommendation/investment advice. It does not aim to influence any individual or entity to make investment decisions. Recipients should conduct their own research and assessments to form an independent opinion about investment decisions. 

Investments in the securities market are subject to market risks, read all the related documents carefully before investing.