The power of compounding — why starting early beats investing more
Two friends invest the same monthly amount. One stops at 35, one starts at 35. The result surprises almost everyone.
Compounding means your returns start earning returns of their own. In the first few years it’s barely visible. Later it does most of the work. The single biggest ingredient isn’t how much you invest — it’s how long the money stays invested.
Asha and Ravi
- Asha invests ₹5,000 a month from age 25 to 35. Then she stops completely and leaves the money alone.
- Ravi waits until 35, then invests ₹5,000 a month for 25 years, until 60.
Ravi puts in ₹15 lakh. Asha puts in just ₹6 lakh. Who has more at 60?
At 12% a year, Asha ends up with about ₹1.9 crore. Ravi, despite investing two and a half times as much, has about ₹85 lakh. Asha’s ten-year head start lets her money compound for 35 years; Ravi’s compounds for at most 25.
The rule of 72
Divide 72 by your yearly return to get roughly how many years your money takes to double:
| Return | Doubles every |
|---|---|
| 6% (FD) | ~12 years |
| 7.1% (PPF) | ~10 years |
| 12% (equity, long-term) | ~6 years |
At 12%, money doubles about five to six times between 25 and 60. Each doubling adds more than all the earlier ones put together, which is why the last ten years look like a cliff on the chart.
What to take from this
- Start now, even small. ₹2,000 a month at 25 can beat ₹5,000 a month at 35.
- Don’t interrupt it. Stopping a SIP in a market dip, or withdrawing for something non-essential, cuts off the end of the curve, where the biggest gains are.
- Then increase it. A yearly step-up adds a second engine on top. See step-up SIPs.
Returns here are an assumption, not a promise. Equity has averaged around 12% over long periods in India, with painful years along the way. The lesson about time holds at any return.
See what your own SIP becomes with the SIP calculator.