The Systematic Investment Plan (SIP), a method of investing allowed by mutual funds, allows one to make periodic fixed-amount investments in a particular equity or debt-oriented scheme. Experts advise that when investing in mutual funds, especially through a systematic investment plan (SIP), one should start early, invest regularly, and stay invested for a long period to get the most out of portfolios by minimising risk in order to create wealth through the power of compounding, rupee cost averaging, low initial investment starting from ₹500 per month, and flexibility of setting up SIP amount and future goals.
However, before investing in a mutual fund scheme, an individual should be aware of his level of risk tolerance and classify himself as an aggressive, moderate, or conservative investor depending on how much risk he is willing to take on. So let’s take an example Mr A is an aggressive investor and is ready to take huge risks but his goal is to get ₹10 Cr in 20 years through an equity-oriented mutual fund SIP, then how much should he invest per month to achieve the goal let’s know our experts’ opinion.
CA Manish P. Hingar, Founder at Fintoo said for aggressive investors who seek to accumulate a corpus of ₹10 Crores over a period of 20 years, the amount to invest would depend on the annualized rate of return they can earn on their investment. Assuming an annualized rate of return of 15%, an investor would need to start a monthly SIP (Systematic Investment Plan) of approximately ₹66,000 for 20 years to accumulate ₹10 Crores.
However, it’s important to note that the rate of return on investment may vary depending on various factors, including market conditions, investment strategy, and the type of investments made. As such, it is advisable for investors to carefully research and analyze different investment options, as well as consult with a financial advisor, before making investment decisions. Additionally, investors may want to consider increasing their monthly SIP amount by 10% annually to achieve the target corpus earlier, CA Manish P. Hingar further added,
By increasing your monthly SIP by 10% every year, you can start with a lower amount of around ₹36,000 per month in the first year instead of the initial investment of ₹66,000 per month. This would still enable you to achieve the target corpus of ₹10 Crores over a 20-year period, he said
It is further advisable to consider investing in a mix of midcap and small-cap mutual funds. These categories invest in companies that have the potential for higher upside in the long run and historically have delivered an impressive CAGR of 18.52% and 20.12% respectively over the last 10 years. It is essential to perform thorough research and comparison of different mutual funds within the category to identify a fund that consistently outperforms its peers and benchmark, claimed CA Manish P. Hingar.
Mr. Abhishek Dev, CEO and Co-Founder, Epsilon Money Mart said how much to invest to get to ₹10 crore in 20 years depends on many factors- the most important being returns earned- which is not possible to predict in advance, though assumptions are made by Advisors based on past performance of asset classes and their expected behaviour/returns. Now purely in numerical terms, if you invest let’s say ₹1.5 crore and if it can compound at about 10% per annum, you should be able to reach ₹10 Crore in 20 years.
Similarly, if you just do a SIP of about ₹1.3 lakh per month for 20 years and if that grows at 10% per annum you could reach ₹10 crore. So depending on the goal amount, assumed returns and mode of investment, various combinations are possible. However, there is no guarantee that an assumed return will be met and hence regular monitoring of the portfolio in line with market and asset class performance will be required, further added Abhishek Dev.
Disclaimer: The views and recommendations made above are those of individual analysts or personal finance companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.