How much to invest in SIP: To ensure you are able to save regularly, it is better to start a SIP in equity mutual funds to help you save Rs 1 crore over the long term.
How to save Rs 1 crore: Keep thinking about how much to save to become a crorepati? Relax! You can also make it possible. There are different ways to save one crore or even more over the long term. To save Rs 1 crore or to save Rs 5 crore or even more, you need to keep saving regularly and use the potential of the equity asset class to achieve your objective over the long term. To ensure you are able to save regularly, it is better to start a systematic investment plan (SIP) in equity mutual funds which can help you save Rs 1 crore over the long term.
How much to invest in SIP
Assuming a return of 12 per cent from equities, one can get Rs 1 crore by investing about Rs 5500 every month for 25 years. If you wish to accumulate Rs 1 crore over 30 years, then the same can be achieved by investing Rs 2,900 per month.
However, if you are not in a position to save a higher amount in the initial years, you can still accumulate Rs 1 crore. Also, if you are able to save Rs 5,500 per month but want to get Rs 1 crore in a shorter duration, then also it can be achieved. There is a simple way to do this.
You need to increase your monthly SIP amount each month by a certain percentage. For that, you need to start with a lesser amount and later on increase the monthly SIP amount at a regular interval.
In the above example, one can start a monthly SIP of Rs 4,300 and then increase the SIP amount by 3 per cent each month. The result is the same as the accumulated corpus will be about Rs 1 crore.
As we saw in the above example, it takes 25 years for someone to save Rs 1 crore by investing Rs 5,500 every month at an assumed growth rate of 12 per cent per annum. Now, if someone wants to save Rs 1 crore in lesser time for example in 20 years, by investing the same amount of Rs 5,500, the monthly increase in SIP amount needs to be about 9 per cent.
Increasing SIP method helps to create a higher corpus. For example, if someone has a SIP of Rs 5000 for 20 years, at an assumed growth rate of 12 per cent per annum, on a total investment of Rs 12 lakh over 20 years, the amount at the end of the tenure will become approximately Rs 50 lakh. Now, with a 10 per cent increasing SIP, on a total investment of Rs 34,36,500, the amount at the end of the tenure will be nearly Rs 1 crore.
WATCH VIDEO: Income Tax Refund Status 2019-20: How to check IT refund status online in 5 minutes!
To sum up
While the initial amount is low, in increasing SIP method, the SIP amount in the later years becomes high. Also, in practice, when one decides to increase by a certain percentage, not all fund houses or schemes may allow in multiplies of rupee one. Hence, when you choose to go for this approach, ensure that the fund house has the Step-Up SIP scheme.
Also, choose to go for a smaller increase as, after a few years, the monthly SIP could become a sizeable amount. You can also use any of the SIP calculators that come with the option to increase the SIP amount to get an idea as to how much will be the SIP amount in later years. Although, with age and as one moves up in career, the propensity to save may also increase. Increasing SIP method comes handy in taking care of inflationary impact on your savings too.