It is essential to understand the financial goals or targets you wish to achieve, and a financial advisor can help create a roadmap and recommend the best strategies to reach them. Here’s a step-by-step guide to building a ₹1 crore corpus using SIPs.
1. Start Early
The earlier you start, the higher the probability of achieving your desired target. Time is your ally in investing, as it amplifies the power of compounding. If you begin investing in your 20s, the monthly amount needed to reach ₹1 crore by your 40s is significantly lower than if you start later.
In the example above, if you increase the rate of return on your investment, the corpus at the end of the tenure will be higher. This is why selecting the right asset class is crucial.2. Invest Regularly
Building a corpus takes time, and regular investments are essential. SIPs allow you to invest a fixed sum at specific intervals, helping you take advantage of market opportunities. With systematic investment plans, the risk is spread out, and there’s no need to ‘time’ the market.
3. Power of Compounding
These strategic principles are embedded within the complex process of wealth creation and are highly effective in the long run. The best part is that your returns don’t just come from your initial investment but from the accumulated interest as well. This wealth accumulation can help you handle higher risks in the future.
In the above case, by extending the investment holding period, the power of compounding allows the investment to grow more effectively.
4. Calculate Future Value
One important function of the SIP calculator is that it helps estimate the future value of an investor’s total investment over a given period. By inputting the monthly investment amount, the expected rate of return, and the investment duration, one can determine how much the corpus will grow.
For example, by investing ₹15,000 per month at an interest rate of 12% for 15 years, the expected value of the investment would be around ₹75 lakhs. These inputs can be adjusted in the calculator to modify the savings rate or extend the investment period to reach a goal of ₹1 crore.
5. Right Asset Allocation
Asset classes such as equity, debt, gold, and others come with varying levels of risk and potential rewards, so it’s important to choose the one that aligns best with your expectations. For instance, investing in equity mutual funds through SIPs over a long period typically yields higher returns. However, if you are more risk-averse, you may consider debt funds.
The SIP calculator can help assess how different allocation strategies affect your investment’s growth. A more aggressive portfolio with a higher equity allocation may grow faster, while a conservative portfolio focused on stability will yield lower returns but reduce volatility.
6. Consider a Long-Term Approach
SIPs are best suited for long-term investment goals. While short-term market fluctuations can be unpredictable, the market generally trends upward over time. Historical data shows that equity markets in India have delivered average annual returns of 12-15% over a 10-year period.
An SIP calculator can illustrate the power of long-term investments. For example, investing for 15 years might yield a corpus of ₹50 lakhs, but extending the investment by just five more years could push the total to over ₹1 crore, highlighting the impact of time and compounding on your investment growth.
7. Focus on Investor Return vs. Investment Return
It is essential to distinguish between the two types of returns: investment return and investor return. There may be instances when the fund you’ve invested in is performing exceptionally well and achieving a high rate of return. However, the returns you realize as an investor are contingent upon how consistently you invest. During periods of decreased market activity, many investors tend to redeem or halt their investments, thereby missing out on the opportunity to benefit from any potential market rebound in the future.
A SIP calculator can assist investors in staying committed to their investment goals by demonstrating how consistent investing—regardless of market fluctuations—can help achieve a ₹1 crore investment corpus. By sticking to SIPs and not letting short-term market volatility undermine their confidence, investors can maximize their returns.
8. Prioritise Savings Before Spending
Prioritizing savings before spending is crucial for building a ₹1 crore nest egg. Financial experts recommend allocating 30-45% of net income towards savings and investments. This approach ensures that investing is prioritized, leaving only spending to be managed.
Automating SIPs can simplify this process, as investments are deducted from accounts before any spending opportunities arise. A SIP calculator can help plan monthly investments based on income and savings goals.
In conclusion, achieving a ₹1 crore investment corpus through SIPs is not a matter of luck, but rather of discipline and strategic investing. By starting early, investing consistently, and leveraging the power of compounding, investors can optimize their investments. The SIP calculator is a valuable tool for estimating future corpus, optimizing investment decisions, and staying on track toward financial objectives.
(Dilshad Billimoria is the Founder, Managing Director, and Chief Financial Planner at Dilzer Consultants. Views are own)