Power of Compounding in SIPs: How Time Multiplies Your Money
By Akhil Chugh
Date Dec 22, 2025
Many investors focus on finding the “best” mutual fund or the “right” time to invest. In reality, long-term wealth creation depends far more on how long you stay invested than on short-term market movements. This is where the power of compounding plays a decisive role. When investments are given sufficient time, returns begin to generate returns of their own, creating a snowball effect that accelerates wealth growth. Systematic Investment Plans (SIPs) are uniquely positioned to harness this phenomenon by combining disciplined investing with long investment horizons.
What Is Compounding in SIPs?
Compounding occurs when:
- Your returns start earning returns, and
- This cycle continues over long periods.
In SIPs, every instalment compounds for a different duration. Early investments get the maximum time to grow, which is why starting early matters far more than investing more later.
Example:
If you invest ₹ 30,000 monthly in equity mutual funds assuming CAGR of 12% will generate wealth:
- After 5 years: ₹24 lakh
- After 10 years: ₹67 lakh
- After 15 years: ₹1.4 crore
- After 20 years: ₹2.8 crore
- After 25 years: ₹5.1 crore
Key Takeaways:
- In the last 5 years, wealth grows by over ₹2.3 crore, despite only ₹18 lakh of fresh investment.
- This is compounding at work—growth accelerates with time.
Why the Last Few Years Matter the Most?
Many investors assume that wealth accumulates in a linear fashion—invest a fixed amount every year and expect proportionate growth. However, compounding works exponentially, not linearly. This is the fundamental reason why a major portion of the final corpus is created in the later years.
Let’s break the above 25-year journey into phases:
Compounding follows an exponential curve. In the early stages, the curve appears flat, which often tests investor patience. However, once the curve steepens, wealth creation accelerates rapidly.
This is why:
- The first 10 years may feel underwhelming
- The next 10 years create meaningful momentum
- The final 5 years often deliver the largest jump in portfolio value
The real power of SIPs does not lie in short-term returns but in staying invested long enough for compounding to reach its most productive phase. The last few years are not incremental—they are transformational. Therefore,
- Stopping SIPs early
- Redeeming during market volatility
- Delaying the start
can significantly reduce long-term wealth.
Conclusion:
The difference between an average investor and a successful one is not intelligence—it is time spent in the market.
If you want to:
- Structure SIPs aligned to life goals
- Optimise asset allocation for long-term compounding
- Stay invested confidently through market cycles
Speak with our experienced team of finance professionals at Net Brokers today and let time work in your favour.
Download our mutual fund app & start investing for your long-term financial goals.
Start early, stay invested, and keep compounding.