Investing a relatively small amount every month can potentially create a substantial retirement fund when the investment continues for several decades. But choosing the right investment route can make a major difference to the final corpus.

Consider an investor who starts putting aside ₹5,000 every month at the age of 30 and continues investing until 60. Over 30 years, the total amount invested would be ₹18 lakh.

Now suppose the investor has two choices: investing through a mutual fund SIP or contributing to the National Pension System (NPS). If the SIP delivers an assumed average annual return of 12%, while NPS generates an assumed 10% annual return, the difference in the estimated final corpus can be significant.

Under these assumptions, the SIP could potentially grow to around ₹1.76 crore, while the NPS investment may build a corpus of approximately ₹1.14 crore.

However, returns are not guaranteed in either case, and investors should also consider liquidity, taxation and withdrawal rules rather than choosing solely on the basis of the projected corpus.

₹5,000 Monthly Investment: The Basic Calculation

For this comparison, assume that investment begins at age 30 and continues without interruption for 30 years.

At ₹5,000 per month, the annual investment comes to ₹60,000.

Over three decades:

₹5,000 × 12 months × 30 years = ₹18 lakh

This ₹18 lakh is the investor's own contribution. The remaining amount in the projected corpus comes from assumed investment growth and the effect of long-term compounding.

Here is how the two options compare under the assumptions used in the source: