SIP Investment: Investment Tips: A SIP of ₹4800 can create a fund of ₹1 crore in 20 years. But, for this, it is important to keep some things in mind. While planning your investment, you also have to keep inflation in mind, which will reduce the value of your money.
SIP Investment Tips: Securing your financial future should be one of the biggest priorities of life. Because it reduces stress to a great extent as you grow older. The most important thing for this is – saving. The sooner you start saving, the easier and bigger the fund you will be able to create.
However, if you just save money and do not invest it anywhere, then inflation will gradually reduce the value of your capital. That is why investment is necessary. And the investment should be such that the return from it can at least beat inflation.
Now the question arises that how can a fund of Rs 1 crore be created from monthly savings in 10, 15 or 20 years to beat inflation?
Mutual funds are the most effective
Financial advisors believe that mutual funds (MFs) are a great way to beat inflation and build wealth. You can invest in mutual funds every month or in lump sum. When you invest every month, it is called a SIP (Systematic Investment Plan).
What is a step-up SIP?
A step-up SIP means that you increase your monthly investment by a fixed percentage (such as 10% or 15%) every year. This keeps your investment habits in sync with your income and also reduces the initial burden. There is also scope to build a larger fund eventually.
How to create a fund of Rs 1 crore?
- Target amount: ₹1 crore
- Estimated return (CAGR): 12% per annum
- Investment method: SIP (monthly investment)
- Step-up rate: Increase SIP by 10% every year
- Investment period: 10 years, 15 years, 20 years
Note: Equity mutual funds and index funds in India have historically given annual returns of 10–14%. We have calculated here considering 12% as a realistic and safe average.
How much monthly savings do you need?
| Investment Period | SIP without step-up |
10% Step-up SIP
|
| 10 years | ₹43,000 | ₹27,000 |
| 15 years | ₹20,000 | ₹10,500 |
| 20 years | ₹11,000 | ₹4,800 |
In Step-up SIP, an increase of 10% in the investment amount is assumed every year. Due to this, the investment will start with a small amount, which will increase every year.
In which mutual fund should I do SIP?
You can invest in mutual funds for SIP as per your choice and convenience. Some mutual funds you can consider are:
- Flexi Cap Funds: Parag Parikh, JM Financial Flexi Cap etc
- Mid-cap Funds: Motilal Midcap, HDFC Mid Cap Opportunities etc.
- Small-cap funds : Nippon India, Axis, Bandhan Small Cap etc.
What about the option of index funds?
Index funds are known for giving stable returns at low cost. They often give an average return of 12–14%. To invest in this, you can invest money in indexes like Nifty 50 and Sensex Top 30. This means that if you invest in Nifty 50 index fund, then your money will be invested in those 50 companies which are included in Nifty. Such as Reliance, TCS, Infosys, HDFC Bank etc.
The aim is that these index funds give the same returns as Nifty 50. On the other hand, mid-cap and small-cap funds can give returns up to 18%. However, the risk in these is also high.
Which fund to choose?
| Timeline | Recommended Fund | Risk Level |
Return Potential (CAGR)
|
| 10 years | Flexi / Mid Cap Funds | Medium to High | 12–14% |
| 15+ years | Mid / Small Cap Funds | High | 13–15% |
| 20 years | Multi Cap / Index Funds | medium | 11–13% |
Note: If you don’t want to actively manage funds, then index funds or ETFs are better for you. They are cheap and easy.
Precautions related to investing in mutual funds
All mutual funds are subject to market risks. If there is any major movement in the market, it will have a direct impact on their returns. Also, every fund has an Expense Ratio, which can reduce your returns slightly. The same scheme may show different expenses on different platforms. In such a situation, always choose the option with lower expenses.
Some funds also have an exit load, which means that a charge will be levied for early withdrawal. This means that if you exit before 90 days or the period specified by the fund, you will have to pay an exit load.
What will be the actual price of Rs 1 crore?
You will be able to raise a fund of ₹1 crore through investment mediums like SIP, but then its value will not be as much as ₹1 crore today. The most important reason for this is inflation, which will reduce the value of our money. Let us know that if the inflation rate remains 6%, then how much will be the value of ₹1 in the coming time.
| Time |
Today’s value of ₹ 1 crore
|
| 20 years later | ₹31.18 lakh |
| 30 years later | ₹17.41 lakh |
| 50 years later | ₹5.43 lakh |
This simply means that the value of money will decrease over time. So, while planning your financial goals, keep inflation in mind. Especially, if you are investing for the long term.
Disclaimer: The information provided here is for information purposes only. It is important to note here that investing in the market is subject to market risks. Always seek expert advice before investing as an investor. Businessleague.in never recommends investing money to anyone.
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