By Nick Investment · Updated 2026-10-28
An illustration of a ₹10,000 monthly SIP over 20 years: why so much of the value builds up late, and what costs, delays and stopping do to it.
Compounding means earning returns on returns. In year one, you earn something on what you put in. In year two, you earn on what you put in plus what it earned in year one. The base keeps growing, so the same rate of return produces larger and larger amounts.
In a mutual fund this happens through the NAV. Gains stay inside the fund (in the growth option) and the value of your units rises. You don't see a separate interest credit.
Compounding works in both directions. A fall also hits a larger base later on. That is why the figures below are an illustration, not a forecast.
Assume a SIP of ₹10,000 at the start of every month and a steady 10% a year return. Real markets do not move steadily, and 10% is an assumption, not a promise or an expected figure. With those assumptions, the value at different points would be roughly:
Look at the gap between year 15 and year 20 in the illustration. The value goes from about ₹40 lakh to about ₹72 lakh. You only add ₹6 lakh in those five years. The rest is growth on a large base. More than 40% of the final value builds up in the last quarter of the time.
Now compare two people who each invest ₹24 lakh in total. One puts in ₹10,000 a month for 20 years. The other waits and puts in ₹20,000 a month for 10 years. At the same assumed 10%, the first ends with about ₹72 lakh and the second with about ₹40 lakh. Same money in, very different results, purely because of time.
Starting five years late has a similar cost. A 15-year SIP of ₹10,000 ends at about ₹40 lakh in the illustration, not ₹72 lakh.
Change the assumed return and the 20-year figure moves a lot. At 8% a year the same SIP would be worth about ₹57 lakh. At 12%, about ₹92 lakh. Nobody knows which, if any, of these the market will deliver.
This is why we suggest planning with a moderate assumption and treating anything better as a bonus. If you plan with a high number and the market gives a lower one, you find out too late to fix it.
Real returns don't arrive at a steady 10%. Some years are up 30%, some are down 20%. For a SIP, the order of those years matters.
Poor years early on, when you have little invested, hurt less, and they let you buy cheap units. Poor years near the end, when the pot is large, hurt much more. That is why the last few years before a goal are the time to reduce equity gradually, so that one late fall does not undo the compounding of the earlier years.
An FD that reinvests its interest compounds too, and so does PPF. What differs is the rate and the tax. FD interest is taxed every year, which reduces the amount left to compound. Equity fund gains are taxed only when you sell, so the whole amount keeps working until then.
A quick way to feel compounding is the Rule of 72. Divide 72 by the yearly return to get the rough number of years for money to double. At 8%, money doubles in about nine years. At 12%, in about six. It works the other way for inflation too: at 6% inflation, prices double in about 12 years.
It is an approximation, and it assumes a steady return. It is still useful for a quick sense check of any claim you hear.
Start as early as you can, even with a smaller amount. Keep costs in view. Don't stop the SIP because of a fall. Let the money stay invested for the full period it was meant for. And plan with sensible assumptions rather than the best year you remember.
Our calculators let you try your own amount, period and assumed return, and show the effect of changing each one.
Mutual Fund investments are subject to market risks, read all scheme related documents carefully. Figures are illustrative assumptions, not a promise or forecast of returns. Past performance is not indicative of future results.
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Nick Investment is an AMFI-registered Mutual Fund Distributor (ARN-112296). We are not a SEBI Registered Investment Adviser. We distribute regular plans and receive trail commission from the asset management companies, which is included in the scheme's expense ratio.