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.

This loss isn't limited to just a ₹5,000 SIP. As your investment amount increases, the cost of delay becomes even more staggering:

Monthly SIP of ₹2,000: A delay of one year results in a loss of approximately ₹8.17 lakh.
Monthly SIP of ₹10,000: A delay of one year results in a loss of approximately ₹40.87 lakh.
Monthly SIP of ₹20,000: A delay of one year results in a massive loss of approximately ₹82 lakh.
How does the scenario shift in the final years?

Observe how money gains momentum in long-term investments through this ₹5,000 SIP pattern:

After 10 years: On a total investment of ₹6 lakh, the fund grows to approximately ₹11.62 lakh.

After 20 years: On a total investment of ₹12 lakh, the fund reaches approximately ₹50 lakh.

After 30 years: The total investment is ₹18 lakh, but the fund swells to ₹1.76 crore.

Notice that while you added only another ₹6 lakh during the final 10 years, the fund jumped from ₹50 lakh straight to ₹1.76 crore. This happens because, by that stage, your investment base has grown significantly. In fact, the returns generated in the last 5 years of an SIP often exceed the total returns earned during the initial 20 years.

If a delay has already occurred, how can it be rectified? If you have already delayed starting, the good news is that this shortfall can be made up. Research indicates that if you missed the first year, you would need to increase your monthly SIP from ₹5,000 to ₹5,655 for the remaining 29 years. In other words, by making an extra 'top-up' of ₹655 per month, you can bridge that ₹20.43 lakh gap.

Experts advise that in the world of investing, the best time is 'today and right now.' Waiting until tomorrow could cost you lakhs of rupees; therefore, start early—even if it is with a small amount.

Disclaimer: This content has been sourced and edited from Money Control. While we have made modifications for clarity and presentation, the original content belongs to its respective authors and website. We do not claim ownership of the content.