How much will a monthly SIP of ₹5,000 for a child's future accumulate in 15 years? Understand the math based on a 12% return.

If you continue a monthly SIP of ₹5,000 for your child's future for 15 years, how large a corpus will you accumulate assuming an estimated annual return of 12%? Let’s look at the calculation.

Every parent wants funds to be ready in time for their child's schooling, higher education, or future needs. Starting an investment at an early age can yield long-term benefits. Investing via a Systematic Investment Plan (SIP) in mutual funds—where a fixed amount is invested on a specific date each month—can be an excellent way to achieve this.

If you start a monthly SIP of ₹5,000 for your child's future, continue it for 15 years, and earn an average annual return of 12%, how much money could accumulate by the end of that period? Let’s understand the full calculation in simple terms.

How much money will accumulate by investing ₹5,000 per month?

If you invest ₹5,000 via a monthly SIP, your total annual investment amounts to ₹60,000. Since you are investing for 15 years, your total investment will reach ₹9 lakh.

How much of a corpus will be created in 15 years with a 12% return?

Based on an estimated annual return of 12% and monthly compounding, continuing a ₹5,000 SIP for 15 years could result in an estimated investment value of approximately ₹23,79,657. Monthly SIP: ₹5,000
Investment tenure: 15 years
Total investment: ₹9 lakh
Estimated returns: Approx. ₹14,79,657
Estimated fund value after 15 years: Approx. ₹23,79,657

Compounding plays a crucial role in this calculation. Initially, the investment amount appears to grow slowly, but over time, returns are generated on the accumulated returns as well. This is why even small monthly savings can help build a substantial corpus over the long term.

Why is time important for a child's SIP?

If the investment goal for your child's future is 15 years away, you have a long horizon to weather market fluctuations. Since a fixed amount is invested monthly in an SIP, units are purchased at varying NAVs (Net Asset Values) as the market rises or falls.

However, a 12% return is neither fixed nor guaranteed. Returns on mutual funds and market-linked investments can fluctuate over time, and the investment value may rise or fall.

Therefore, the figure of ₹23,79,657 mentioned above is merely a calculation based on an estimated 12% return.

A 'Step-up SIP' can lead to a larger corpus!

If your salary increases annually, you can also increase your SIP amount over time; this is known as a 'Step-up SIP.' If you start with ₹5,000 and increase the SIP amount by a fixed percentage each year, the corpus accumulated after 15 years could differ significantly from that of a standard ₹5,000 SIP.
When investing for your child, it is important to consider not just the estimated returns, but also the target amount, investment tenure, risk appetite, and future financial requirements.