SIPs enable you to consistently invest a predetermined sum in a mutual fund of your preference, allowing you to take advantage of rupee cost averaging and the benefits of compounding over time.
Accumulating a corpus of Rs 1 crore within a decade may appear to be an unattainable goal for numerous individuals; however, with dedication and regularity, it is indeed achievable. Various investment options are available to enhance your returns, yet one of the most effective methods for wealth accumulation over time is by utilizing a Systematic Investment Plan (SIP) in mutual funds.
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SIPs enable you to consistently invest a predetermined sum in a mutual fund of your preference, allowing you to take advantage of rupee cost averaging and the benefits of compounding over time. If your goal is to amass Rs 1 crore within a decade, here are the steps you can follow to achieve this objective.
The Power of SIPs
An SIP serves as a powerful investment mechanism, allowing individuals to allocate a predetermined amount of money at consistent intervals, typically on a monthly basis, into a mutual fund. By investing regularly, you average out the cost of units over time, reducing the impact of market volatility. This makes SIPs an excellent choice for both beginners and experienced investors looking to achieve long-term goals, such as buying a home, funding children’s education, or building a retirement corpus.
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SIPs help you create wealth in a disciplined manner over 10-20 years. The key to achieving this goal lies in the amount invested, the duration of investment, and the expected rate of return. The longer you remain invested, the higher will be the reward for investors.
Reaching Rs 1 Crore in 10 Years
Let’s consider an example where you invest Rs 45,000 per month through SIPs in mutual funds, expecting an average annual return of 12%. Over a period of 10 years, the power of compounding will significantly increase your corpus. Here’s a detailed breakdown of how this works:
- Monthly SIP Investment: Rs 45,000
- Investment Tenure: 10 years
- Expected Returns: 12% per annum
- Total Investment: Rs 54 lakh
- Gains from Investment: Rs 50.55 lakh
- Future Value: Rs 1.05 crore
Thus, by investing Rs 45,000 every month for 10 years, you will accumulate a corpus of Rs 1.05 crore, which includes Rs 54 lakh as the amount you invested and Rs 50.55 lakh as the returns earned over the period.
Understanding Compounding
When you invest through SIPs, the returns generated on your investments get reinvested, allowing you to earn returns on your returns. This is the key factor behind building a substantial corpus over time, such as Rs 1 crore or more.
Adhil Shetty, CEO of Bankbazaar.com, says, “Compounding works best over long periods, which is why it’s essential to start early and remain consistent with your SIPs. In the case of a 10-year investment horizon, your gains will increase exponentially in the later years as compounding kicks in fully.”
Why 12% Returns?
The assumption of 12% annual returns is based on historical performance. Equity mutual funds in India, especially those in the large cap, mid cap, and diversified categories, have delivered average returns in the range of 10-15% over the long term. By investing in well-chosen equity mutual funds with a diversified portfolio, you increase your chances of earning a return close to 12%.
The key to success lies in the power of compounding, disciplined investing, and selecting the right mutual funds. Start early, stay invested, and watch your wealth grow over time.
