Mutual Funds Systematic Investment Plans (SIPs) have become one of the most popular investment options for many to build wealth in India. Following this disciplined approach allows you to contribute a fixed amount every month and instils financial discipline, besides harnessing the power of compounding over time.
For many individuals, creating a corpus of Rs 1 crore often stands out as a milestone that symbolises financial security and long-term stability. But the real challenge here is the time you need to achieve that target. Can a monthly SIP of Rs 40,000 over a period of 10 years realistically help you reach this coveted target? Let's find out.
SIPs: Understanding The Basics
In SIPs, investors are required to contribute a fixed amount regularly into mutual funds. Over time, compounding and rupee cost averaging help build significant wealth. Some of the key variables that determine the final corpus are monthly investment amount, total duration, and expected annual return rate.
If you are investing Rs 40,000 per month into a SIP for a period of 10 years, this adds up to a substantial Rs 48 lakh over a decade. However, the outcome depends mainly on the annual returns generated by the chosen mutual funds.
Assuming that the mutual fund, on average, is receiving 12% rate of return, then the total investment would look like this:
Monthly investment: Rs 40,000
Tenure: 10 years
Total investment: Rs 48,00,000
Expected rate of returns: 12%
Estimated returns: Rs 44,93,563
Maturity corpus: Rs 92,93,563
Also Read: Starting At 27? Here's The SIP Plan You Need To Build Rs 1-Crore Corpus
These figures highlight why 10 years is a short duration and do not grant enough time to the mutual fund to gain from the power of compounding. In such a scenario, investors can go for either diversification for higher returns or consider step-up SIPs to reach the Rs 1 crore target.
If you invest Rs 40,000 in SIPs for a year and later step up the monthly SIPs by 10% each year, then the total investment would appear like this.
Monthly investment: Rs 40,000
Step Up % (annual): 10%
Investment duration: 10 years
Expected rate of return: 12%
Total investment: Rs 76,49,928
Estimated returns: Rs 58,47,333
Maturity corpus: Rs 1,34,97,261
Also Read: Earning Rs 6-12 Lakh At 35? Here's Your SIP Roadmap To Become A Crorepati By 50
In conclusion, a Rs 40,000 SIP for a period of 10 years may not guarantee Rs 1 crore unless you achieve unusually high returns. To confidently hit the Rs 1 crore milestone, you need to increase your SIP amount or diversify with additional contributions.
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