Many of us start a Systematic Investment Plan (SIP) with enthusiasm. We pick a fund, set up a monthly contribution, and watch our investment grow, often with a sense of pride and accomplishment. But life happens—jobs change, expenses increase, priorities shift, or a new fund catches our eye. As a result, many stop contributing to their SIPs. This raises a critical question: Does compounding stop when you stop investing?
The Myth: Compounding Stops When You Stop SIP
Many investors assume that once they stop contributing, their money will no longer grow. This is a common misconception. While fresh contributions amplify compounding, the existing corpus continues to generate returns—this is the real power of compounding. Your money doesn’t just sit idle; it keeps growing at the rate determined by the underlying fund or investment vehicle.
How Compounding Works Even After You Stop
Let’s take a simplified example:
- You invested ₹5,000 per month for 5 years in a fund earning an average of 12% annually.
- By the end of 5 years, your corpus is around ₹4.5 lakh.
Now, suppose you stop contributing. You do not add a single rupee further. Over the next 15 years, that ₹4.5 lakh continues to earn roughly 12% per year. By the end of 20 years, your initial effort of just 5 years could have grown to over ₹25 lakh—without adding another rupee!
This is the magic of compounding: your returns start generating their own returns.
Why Starting Early Matters
The key lesson here is that time is a critical factor. The earlier you start, the more time your money has to grow. Even small contributions can become substantial over decades. On the other hand, delaying investment or stopping contributions early doesn’t kill growth—it merely reduces the total corpus you could have had.
The Psychology of “Forgotten Investments”
Interestingly, some investors benefit from what could be called the “forgotten investment effect.” Once contributions stop, and you forget about the investment, the temptation to withdraw or make impulsive decisions is reduced. This hands-off approach can often yield better results than actively managing and tweaking the investment too frequently.
A Word of Caution
While compounding is powerful, it’s not a magic wand. Returns are subject to market risks, and not all funds will grow at the same pace. Equity funds may offer higher potential returns but come with volatility. Debt funds are steadier but yield lower returns. Understanding your risk tolerance and aligning your investments accordingly is crucial.
Takeaway
- Compounding doesn’t stop when you stop SIPs. Your existing corpus continues to grow.
- Starting early and being consistent maximizes compounding benefits.
- Even a few years of disciplined investment can create a substantial corpus if left to grow over the long term.
- Sometimes, forgetting about your investment and letting it grow is the best strategy.
The shocking power of forgotten investments lies in this: small, disciplined efforts in the early years, combined with patience, can lead to extraordinary wealth—even if you stop contributing for a while.
Disclaimer:
The views and opinions expressed in this article are those of the author and do not necessarily reflect the official policy or position of any agency, organization, employer, or company. All information provided is for general informational purposes only. While every effort has been made to ensure accuracy, we make no representations or warranties of any kind, express or implied, about the completeness, reliability, or suitability of the information contained herein. Readers are advised to verify facts and seek professional advice where necessary. Any reliance placed on such information is strictly at the reader’s own risk..jpg)
click and follow Indiaherald WhatsApp channel