If you are a lakhpati today, how soon you can become a crorepati depends not just on your investment strategy, but also on how much you want to contribute in the future.
For investors starting with a smaller corpus, simply continuing with the same SIP may take considerably longer to reach the Rs 1 crore milestone. This is where a step-up SIP can help accelerate the journey. By increasing your monthly investment at regular intervals as your income rises, you can potentially build wealth faster.
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So, how much should your SIP rise at each stage to reach Rs 1 crore?
In this case, we have two parallel aspects of the calculation:
Compounding of Rs 1 lakh (initial investment)
Wealth creation through SIP
Assuming that someone wants to reach this milestone in around 10 years, here is the estimated SIP required at a 12% return:
How Rs 1 Lakh Will Grow Over 10 Years:
Investment amount: Rs 1,00,000
Investment duration: 10 years
Expected rate of return: 12%
Estimated returns: Rs 2,10,584
Total value: Rs 3,10,584
This means that the remaining amount of Rs 96,89,416 (Rs 1 crore minus Rs 3.10 lakh) will need to come through the SIP route without a step-up.
SIP Math:
Target amount: Rs 96,89,416
Investment duration: 10 years
Expected rate of return: 12%
Invested amount: Rs 50,04,452
Estimated returns: Rs 46,84,963
Monthly SIP amount: Rs 41,703
This means you will need to invest nearly Rs 42,000 every month for 10 years to reach the target. However, with the step-up SIP strategy, you do not need to commit such a large amount from the beginning. Instead, you can start with a smaller monthly investment and gradually increase it each year as your income grows.
Here's How:
Monthly amount: Rs 28,700
Step Up % (annual): 10%
Investment duration: 10 years
Expected rate of return: 12%
Invested amount: Rs 54,88,849
Estimated returns: Rs 41,95,467
Total value: Rs 96,84,316
This means that over the same duration, you can get close to the target by beginning your investments with Rs 28,700 per month in the first year. Subsequently, you will need to increase the SIP amount by 10% every year, aligning the increase with your income growth.
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This amount can be reduced further if your investment horizon is longer. For instance, over 15 years, your initial Rs 1 lakh grows to around Rs 5.5 lakh. This means you need to start with a SIP of around Rs 11,000 per month, with a 10% annual step-up, to build the remaining corpus of around Rs 95 lakh.
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