A Systematic Investment Plan (or SIP) is the most popular way of investing in mutual funds because it allows investors to optimise their gains from the power of compounding, rupee cost averaging, handy investment mode, flexible tenor and so on.
Mutual funds are the most popular long-term investment vehicle since they provide not only liquidity but also dividends, diversification, expert administration, flexibility to invest in tiny portions, lower cost, lower tax on gains, tax benefits, and so on. A Systematic Investment Plan (or SIP) is the most popular way of investing in mutual funds because it allows investors to optimise their gains from the power of compounding, rupee cost averaging, handy investment mode, flexible tenor and so on. Let’s now take the example of building a corpus of ₹10 crore in 20 years. How much monthly SIP will be needed and on which mutual funds investors can park their money, experts have made their views here based on an exclusive interview with Livemint.
Gautam Kalia, SVP and Head Super Investor at Sharekhan by BNP Paribas:-
A large corpus target usually means a lot of time. The biggest challenge to building such a large corpus is staying the course through all that life deals us. If we are able to maintain that discipline of investing regularly and staying invested through the years, there's a good chance you will make it. To create a corpus of Rs.10Crs in 20 years, you will need to have SIPs of Rs.1.01 lakh per month (assuming returns of 12% pa) in equity mutual funds.
Mutual funds -
ICICI Prudential Bluechip Fund - Growth (Large Cap - 30%)
Kotak Equity Opportunities Fund - Growth (Large & Mid-15%)
Mirae Asset Midcap Fund - Growth (Mid Cap-12.5%)
SBI Small Cap Fund - Growth (Small Cap - 12.5%)
HDFC Flexi Cap Fund - Growth (Flexi Cap -30%)
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Dos
1. Get a good advisor and review your investments regularly.
2. Focus on asset allocation over scheme/investment selection.
3. If investing in the stock market, think of market volatility as the price of admission.....ride it.
Don'ts:
1) Don't change your goals mid way through the journey by buying that second house or the fancier car.
2) Avoid opportunities that may lead to catastrophic loss i.e.any get rich quick scheme.
3) Don't miss the forest for the trees. Focusing on reducing cost instead of increasing alpha.
Akshar Shah , Founder, Fixed (An upcoming investment platform for reliable fixed income options)
Building a corpus of ₹10 crore in 20 years is no easy feat but still possible provided you invest your hard-earned money well. And investing well does not mean that your money needs to be in the highest-risk MF schemes. Investors need to first understand their risk appetite and comfort with market volatility. For example, a SIP into only equity mutual funds has returned approximately 12% historically but has seen years where the portfolio is in red. Alternatively, a balanced and diversified asset class portfolio may return 10% but with more consistency and stability.
Based on the risk appetite, they can plan for an optimal amount of SIPs either in equities or diversified across asset classes. You need to have a monthly SIP of ₹1 lakh growing at approximately 12% annually to reach ₹10 crore in 20 years. Alternatively, a SIP of ₹1.3 lakhs across diversified asset classes grows at approximately 10% to reach ₹10 crore. A disciplined and consistent approach to investing in quality mutual fund schemes can help investors achieve their long-term financial goals.
Apart from the SIPs, investors should create an emergency fund separately that ensures that in times of need and liquidity, they need not withdraw from their corpus accumulated from SIPs.
When it comes to selecting mutual fund schemes, it is important to do your due diligence and choose funds that align with your investment goals and risk appetite. Some of the funds investors can evaluate from SIP standpoint are
Equity
1. ICICI Prudential Nifty Next 50 Index Fund
2. Kotak Emerging Equity Fund
3. Axis Small Cap Fund
Debt
1. HDFC Short term debt fund
2. Edelweiss Bharat Bond 2030
Gold
1. HDFC Gold Fund
Building a corpus of ₹10 crore is no easy feet. It is a long-term goal that requires careful planning and smart investment decisions along with ability to stay disciplined. Some dos and don’ts to help investors
Dos:
Save well: Manage your expenses and save well. It is important to try and save at least 30% of your annual income
Start investing now: The earlier you start investing, the better your chances of building a large corpus. Even small amounts of money invested regularly can grow into a large sum over time.
Diversify your portfolio: Investing in a mix of asset classes like equity, debt, and gold can help reduce the risk of losses and provide better returns in the long run.
Build a separate corpus for emergency and short-term goals: Shield yourself against contingencies and build investments separately for short-term goals in low-risk and safe investments
Seek financial advice: Building such a large corpus requires you to seek help from a financial expert who can understand your goals and risk appetite
Don'ts:
Don't invest blindly: It's important to understand the risks and potential returns of any investment before investing your hard-earned money.
Don't chase quick returns: Investing for a 10 crore corpus is a long-term commitment. Avoid the temptation to chase quick returns, as this often involves taking on too much risk.
Don't put all your eggs in one basket: Investing all your money in one asset class can expose you to higher risks and limit your potential returns.
Don’t take excessive debt: Avoid personal high-interest loans and try accelerating EMIs when interest rates are high
Don't forget your financial goals: Stay focused on your financial goals and avoid getting side tracked by short-term market fluctuations.
Aniruddha Bose, Chief Business Officer, FinEdge
There are a few important things to keep in mind before you embark on your 10-crore quest.
First, understand the interplay of risk and reward so that you’re mentally prepared for the journey to come. The fact that you’ll have some deeply frustrating phases in your investing journey is not a mere possibility – it’s an absolute certainty. For instance, SIP investments that have been made over the preceding twelve months are all either marginally in the negative or flat. There may even be phases when your investments are in the red. It is during these times that you must keep your SIP’s running resolutely instead of stopping them with the intent of restarting them when “things get better" or redeeming your money temporarily and trying to time your entry back “after markets recover". Trying to predict the market will set off a cascading sequence of reactions that could result in serious wealth destruction.
Second, enlist the support of a trustworthy advisor if you can. Remember, investing is easy, but creating wealth isn’t! And we’re talking about creating a large sum of Rs. 10 Crores here. A competent advisor can help keep your greed and fear in check while also helping you invest into the best possible funds for your goal, without falling prey to faddish trends or marketing gimmicks.
Third, don’t be disheartened if you face roadblocks. Even if you face temporary setbacks in the form of emergencies that force you to stop your SIP’s or redeem funds temporarily, remember that there are many strategies such as step-ups, periodic lump sums etc that can help you cover the lost ground, especially in the early stages of your journey. So, hang in there and be prepared to course-correct if required.
Fourth, don’t fall prey to the temptation to stop your SIP’s and speculate your way to your ₹10 Crore target instead. Trying things like leveraging your money in F&O, searching for the next big multi-bagger, day trading etc will not get you to your 10 Crore target. As someone rightfully said – the easiest way to make Rs. 1 Crore by trading in stocks is to start off with 10 Crores! There are going to be no shortcuts here. Discipline, perseverance, and a measured approach to risk-taking (which is very different from gambling or speculation) are what will help you meet your target.
First off, its important to know that building a 10 Crore corpus through SIP investing over a 20 year timeframe is not going to be an easy feat! In addition to the obvious act of making short term lifestyle sacrifices and saving a large chunk of your net income very month, it will also require every ounce of investing discipline that you can muster, as well as a stronghold over your innate behavioural biases.
What can work in your favour here is the time frame. The longer the investment horizon, the more risk you can afford to take with your investments – and the more risk you can take, the more you’ll benefit from rupee cost averaging and compounding. In other words, the act of “saving" money has little to do with creating such a large corpus – where you channelize the investment matters a lot more. For a two-decade investment horizon, we would recommend that you invest into small and mid-cap-oriented funds that have the maximum potential for compounding your money.
Assuming a CAGR of 12-13% from small and mid-caps (a reasonable expectation to have for such a long-time horizon), you’ll need to invest between Rs. 90,000 to Rs. 100,000 every month through SIP’s. If that seems like a huge stretch, fortunately there’s another option available: you could start off with Rs. 40,000 per month today and increase your monthly SIP contribution by Rs. 10,000 every year for the next 20 years. If you’re confident that your investible surplus will go up by Rs. 120,000 per annum for the next 20 years, this is probably a better option as it’s more sustainable over the long run.
Remember, this is going to be a marathon, not a sprint – so any effort that you decide to make will have to be sustainable for a very long time to prove fruitful!
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.
