If you invest consistently in mutual funds via a systematic investment plan (SIPs), you can definitely meet your financial goals well in time. If your financial goal is high, say ₹1 crore, that you aspire to attain in the next 12 years, how much investment would that require?
Well, it depends on the rate of return that your investment tends to give. The higher the annualised return, the lower the SIP. Conversely, the lower the return on investment, the higher the SIP required.
Before proceeding, it is important to first understand the phenomenon of compounding. Under this, return earned in the initial period becomes principal in the later years, thus delivering accelerated returns in the later years.
This phenomenon is often lauded by the likes of Warren Buffett. In fact, a famous scientist of the last century, Albert Einstein, once referred to ‘compound interest’ as the ‘eighth wonder of the world’. This concept of compounding unfolds in the case of a systematic investment plan.
What is SIP?
This is a method of investing in mutual funds where small amounts are invested at regular intervals, such as weekly, monthly, or quarterly, to achieve financial goals over a long period of time. This method of investing helps investors maximise the benefits of rupee cost averaging.
With the help of the Mutual Fund SIP calculator, we computed the following figures, which indicate that for a monthly SIP to touch ₹1 crore, investors must invest a minimum of ₹36,000 a month when the rate of return is 10 percent a year.
And when the annualised rate of return is 11 percent per annum, an investor would require a slightly lower amount, i.e., ₹33,500 per month, to be able to accumulate ₹one crore in this time period (12 years).
Moving on, when the rate of return is 12 percent per annum, an investor must invest a minimum of ₹31,250 to be able to accumulate ₹one crore in a dozen years.
To sum up, investors must invest consistently an amount in the range of ₹31,000 to ₹36,000 every month so that they can accumulate ₹one crore in 12 years when their investment is growing in double digits.
Note: This story is for informational purposes only. Please speak to a SEBI-registered investment advisor before making any investment-related decision.
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