Worked Example
How does ₹5 lakh grow over 20 years at 11% CAGR?
Scenario
Health corpus growing at 11% to combat 10-12% healthcare inflation
Inputs
- Years
- 20
- Initial INR
- 5,00,000
- Inflation %
- 6
- Expected return %
- 11
Calculation
- 1.
Compounding multiplier over tenure
(1 + 0.11)^20 → 8.06x
- 2.
Future value (nominal)
₹5L × 8.06 → ₹40.31 L
- 3.
Future value (real, after 6% inflation)
Nominal ÷ (1.06)^20 → ₹12.57 L
- 4.
Real CAGR (after inflation)
Nominal − Inflation (Fisher approx) → 5%
Conclusion
₹5 lakh grows to approximately ₹0.40 crore in 20 years at 11% — but real purchasing power after 6% inflation is closer to ₹0.13 crore.
Tradeoffs
Steady-rate assumption fails in volatile asset classes (equity has 20-30% drawdowns regularly). Lumpsum invested at market peak vs trough can differ ±30% over decade. STP/SIP smooths timing risk for amounts above ₹5-10 lakh.