Achieving specific milestones with your investments is everyone’s dream, and to accomplish this, understanding the power of compounding is vital. By investing a specific sum regularly and reinvesting the returns into your savings, you can accumulate substantial wealth over time. Here is how you can reach your target of Rs 1 crore, Rs 5 crore and Rs 10 crore with a 10% annual increase in Systematic Investment Plan (SIP) investment.
The concept of SIP obliges you to invest a fixed amount in your preferred mutual fund scheme routinely. This disciplined saving, combined with a specific annual increment, can assist you in achieving your financial goals. Suppose you start investing Rs 30,000 per month and increase this investment by 10% every year. In that case, according to FundsIndia's Wealth Conversations November 2023 report, you'd amass Rs 1 crore in 10 years, Rs 5 crore in just under 19 years and Rs 10 crore in 23 years and 5 months.
Emphasising this, if you can afford to start with a larger monthly investment of Rs 50,000 and continue with the annual increment of 10%, this time frame would reduce significantly. You could expect to reach Rs 1 crore in 7 years and 8 months, Rs 5 crore in 15 years and 10 months, and the target of Rs 10 crore in just over 20 years.z
Even more ambitious investors with significant disposable income for investing may opt to start with Rs1 lakh per month. Such individuals could witness their wealth grow even more rapidly. Applying the same 10% annual increase, these investors could expect to accumulate their first Rs 1 crore in little over 5 years, hitting Rs 5 crore in 12 years, and finally achieving the lofty goal of Rs 10 crore in under 16 years.
Also read: Investing in a home? Why pollution matters when buying a flat in Delhi NCR
Also read: I earn Rs 90K a month. How can I plan to save tax and future EMIs for home loans?
These projections are calculated with an assumed rate of return of 12%. It's noteworthy to remember that while this rate of return is often observed in equities, the market’s volatility also means that in some years, returns might be lower, or there might even be losses. That said, long-term investments in equity have widely been observed to balance out this volatility, paving the way for significant wealth creation. You can start an SIP in any large cap equity mutual fund to achieve the target. If you are risk taking investor you can also diversify your investments in large-, mid- and small-cap funds.
In conclusion, it’s crucial to understand that achieving your investment objectives is indeed possible. It requires a disciplined approach to saving and investing, a thorough understanding of the power of compounding, and the patience to hold your investments over the long term. Remember, an annual increment in your SIP investments can significantly speed up your journey towards your financial goals. In this journey, the key is not to get distressed by short-term market volatilities but to stay steady with a long-term perspective. So, start early, invest routinely, and enjoy the wealth you can accumulate over time.