Mutual funds are attracting a wide range of investors who are looking to maximise their returns compared to traditional savings instruments. For long-term wealth creation, mutual fund SIPs are often preferred due to the power of compounding and the flexibility.
Systematic Investment Plans (SIPs) have become a popular and effective way to invest in mutual funds as they offer an opportunity to build wealth with investment of a small amount every month. To make this strategy even more effective, many investors are now adopting techniques such as ‘step-up SIP' to maximise returns.
Under ‘step-up SIP', the investors can increase their existing contribution periodically to benefit from the power of compounding. While stock market-linked investments come with high risk, spreading them over the years could be beneficial. There are several popular mutual fund houses that have given investors average yearly returns of 12-14%.
That's why even a target of a huge corpus like Rs 1 crore in a short duration may not be out of reach.
Here's How To Become A Crorepati In 10 Years Via SIP Investment
The target corpus in this case is Rs 1 crore and the investment duration is 10 years.
With a simple SIP strategy in a mutual fund that gives 12% returns annually, here's how the investments would grow:
Tenure: 10 years
Monthly required SIP: Rs 43,500
Estimated returns: 12%
Invested amount: Rs 52,20,000
Estimated returns: Rs 48,86,749
Total value: Rs 1,01,06,749
In the above case, the SIP amount of Rs 43,500 per month could be an unaffordable amount for many people. In such a case, one may also choose to opt for ‘step-up SIP' that can spread the contribution over the years as the income increases:
Tenure: 10 years
Monthly required SIP: Rs 30,000
Annual step-up: 10% of the investment each year
Estimated returns: 12%
Invested amount: Rs 57,37,472
Estimated returns: Rs 43,85,505
Total value: Rs 1,01,22,978
While initial SIPs seem less in the ‘step-up SIP' option, the overall investment amount is more. Hence, it depends on the investor's choice whether one wants to pay large sums upfront and reduce investment value or be more flexible with contributions.
Investors should also note that this final corpus is not adjusted for inflation. Hence, one must carefully review their financial targets and align them with inflation and capital gains tax for the best outcomes.
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