Kolkata: Mutual funds are rapidly emerging as the preferred instrument for a vast number of middle-class and lower middle class people in India to build a pool of corpus in the long-term. The latest proof is the in the SIP inflows in the war-torn month of March reached Rs 32,087 crore, a 7.5% from the February figure of Rs 29,845 crore. At that rate, SIPs amounted for well over Rs 1,000 crore every day of the month. The number of contributing SIP accounts too reached a record 9.72 crore, mirroring continuous retail investor participation in spite of volatility in the equity market. The efficacy of the SIP mode of investment lies in the fact that it does not require the investor to commit a lot of funds at one go but to stagger it over years. It achieves a three-fold feat. One, it dovetails the monthly payout (or weekly etc) with the saving capacity of the investor. Two, it takes advantage of the averaging of cost so that when the market goes down one accumulate more units at the same investment and three, it unleashes the giant power of long-term compounding over a long period of time. For example, building a pool of Rs 1 crore in 10 years is achievable without hiccups with the right investment strategy. Let’s have a closer look.
How to make Rs 1 crore through MF SIP
The Rs 1 crore figure still rings a bell among many. With SIP in right mutual fund schemes, this goal is not too difficult to achieve. In fact, one can amass this corpus in just about 10 years. Sounds incredible. Well, let’s have a look at the numbers. This goal can be achieved by investing gradually through SIP in mutual funds. A calculation by Value Research has show than one need to invest about Rs 45,000 a month to build the corpus of Rs 1 crore. This calculation assume a 12% return. The SIP amount will jump to Rs 50,000 a month if a return of 10% is assumed. In any SIP, patience and discipline of the investor are invisible requirements. Let’s consider the number.
Goal: To reach Rs 1 crore
Rate of return: 12%
Monthly SIP: Rs 45,000
Rate of return: 10%
Monthly SIP: Rs 50,000
It must be noted that equity mutual funds are ideal vehicles for this type of capital appreciation. Flexi-cap funds have become very popular due to the flexibility of the fund manager in allocating money across the market. While large cap funds usually are the most stable, mid-cap funds help capital appreciation. Small-cap funds can offer higher returns but also carry higher risk. It’s important to strike the right balance and a qualified mutual fund investor should be consulted while choosing funds in the long-term.
One can also consider a Step-Up SIP. As the name indicates, in this mode, one raises the amount of SIP every year. Needless to say, it helps one achieve the financial goal faster than a vanilla SIP, assuming one begins with the same amount in the first year.
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