Mutual Fund SIP: A delay of just one year costs you ₹82 lakh! Discover this bitter truth about mutual fund SIPs..

Mutual Fund SIP: When we start a Mutual Fund SIP, the monthly installment amount appears identical on paper. The ₹5,000 you deposit in the first month is the same amount you deposit in the 30th year. However, did you know there is a world of difference between the earning potential of your first installment and your last?

In the mathematics of mutual funds, your investment from the first year is far more valuable than your investment from the final year. Delaying the start of your SIP by even a single year could cost you a staggering ₹82 lakh. Let’s understand this surprising power of compounding through an analysis by Nehal Mota, Co-founder and CEO of Finnovate.

Why is the first installment so valuable? Understand the magic of compounding.

Compounding simply means earning 'interest on interest.' The money you invest in the first year gets a full 30 years to grow. That capital generates returns upon returns year after year for three decades. In contrast, the money deposited in the final year gets only a few months to grow. This is why even a minor delay at the start can significantly reduce your final maturity corpus.

Calculation: A delay of just one year means losing ₹20 lakh!

Let’s understand this with the example of a ₹5,000 monthly SIP:

Case 1: If you invest ₹5,000 per month in an SIP for 30 years, your total investment will be ₹18 lakh. Assuming an estimated annual return of 12%, your fund would grow to ₹1.76 crore after 30 years.

Case 2 (Starting with a one-year delay): Now, let’s assume you delayed starting by one year or skipped a year. Generally, people might think the loss is merely ₹60,000 (₹5,000 × 12 months). However, after 29 years, your total fund would be reduced to ₹1.56 crore.

What is the extent of the loss? The actual cost of a one-year delay turned out to be ₹20.43 lakh (₹1.76 crore - ₹1.56 crore)! In other words, that missed ₹60,000 investment cost you over ₹20 lakh in your future corpus.

The larger the SIP amount, the heavier the cost of delay.