How to earn Rs. 1 crore through Monthly SIP in Mutual Funds?

How to earn Rs. 1 crore through Monthly SIP in Mutual Funds?

Roboadviso     Asset Allocation,Financial Planning,Mutual Funds     Posted On, Sat 16th September, 2017     No comments

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Many of us want to begin the process of investment only after we accrue a large amount of money for purposes of investment.

The general belief is that periodic investments of a small sum of money cannot help achieve the ambitious long-term financial and personal goals. This thought process is one of main reasons why many individuals indefinitely defer or delay their investments. It may however be noted that investing sums as low as INR 1000 on a monthly basis via an SIP or Systematic Investment Plan in equity based mutual fund schemes over a few decades can help accumulate a corpus of INR 1 crore.

For example, if you begin investing INR 5000 per month via SIP in an equity fund, then you can generate wealth of INR 1 crore in about 25 years. If you have a larger sum, like INR 20,000, to invest every month then the SIP investment option can help you realize a corpus of INR 1 crore in approximately 15 years. In both cases, the annual rate of return is assumed to be 12 percent.

What is SIP?

SIP can be termed as a financial tool provided by mutual funds and it allows investors to invest small sums at periodic intervals over a long time period. The option also makes use of the power of compounding to ensure increased returns in a fund portfolio and creation wealth.

With regards to the equity market, one has to time the market and make relevant stock purchases at a specific price and later book profit when the stock price has gone up significantly. The process of market timing can be time consuming, and requires an understanding of the market, and needs research and detailed analysis.

This is not the case with SIP as the process of rupee cost averaging automatically times the market and eliminates the need for investing at right time. SIP also offers many other benefits like power of saving, disciplined investment, tax savings, ease of investment, and convenience.

How to earn Rs. 1 crore through Mutual Fund SIP?

One of the best ways to realize your long-term dream goals is investment in an equity MF scheme through an SIP. Equity comes with the potential of offering superior yields as compared to other asset classes. SIP may also play a role in overcoming inflation, an aspect which is vital towards realization of long-term goals. Equity MF schemes also come with favorable tax options. There is no taxation on long term capital gains on investments that are held for more than a year.

People who are able to spare around INR 5000 per month should immediately begin investing in equity MFs via SIP. Check out the different MF scheme portfolios and choose one as per the available SIP sum and your appetite for risk. If the portfolio has managed to provide 12 percent annual returns and/or has potential to provide 12% yearly returns, then monthly SIP investment of INR 5000 will allow you to earn a corpus of 1 crore in around 25 years.

It may however be noted that the above is not the ideal method of investment. Investors should try to raise the monthly SIP investments as per increases in their income. You can try to raise the monthly sum by about 10 percent every year. Thus, if you have invested INR 5000 per month for the first year, then try and increase the next year’s monthly SIP sum to INR 5,500. Continue this process of increasing the SIP sum every year till you create a corpus that will help achieve your goals. If this method is followed, you can accumulate wealth of INR 1 crore in about 21 years. It is again assumed that the annual rate of return is 12 percent.

Reviewing the Mutual Fund portfolios

After investing in an equity mutual fund scheme via SIP, make sure that you keep track of the progress and performance of MF on a regular basis. You can check the performance every month, six months, or yearly. If the fund is not lagging behind its competitors/peers by a big margin or if it is easily outperforming the benchmark, then you may continue with the investment. If the fund does not perform for 1 year or more, then find out the reasons behind the non-performance/underperformance. If the reason is not satisfactory, then it is best to sell your MF investment and move the money to another SIP equity scheme within the same category.

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