Summary of this article
SIP investing can potentially build Rs 100 crore corpus
Annual SIP step-ups sharply reduce required starting investment
Long-term compounding drives wealth with disciplined mutual fund SIPs
How huge a corpus could you build with your monthly investments in mutual funds? To get an understanding, we at Outlook Money started with an overly-aggressive target of Rs 100 crore corpus, large enough to evaluate the extent your simple monthly investments via systematic investment planning (SIP) in mutual funds could make.
The calculations started with a few assumptions. Target corpus of Rs 100 crore through monthly investments. The return assumption was fixed at 15 per cent per year, with compounding happening monthly. To remove uncertainty, the first approach locks in the time frame at 50 years and works backward to find out how much needs to be invested every month.
Case 1: No Increase in SIP
In the first scenario, the investment amount never changes. The SIP stays exactly the same for the full 50 years. When the numbers are worked out, the required monthly investment comes to Rs 7,247. This amount has to be invested consistently from the first month to the last. So, if you invest Rs 7,250 per month for 50 years, assuming a 15 per cent rate of return, you can reach the 100 crore target.
Case 2: SIP with Annual Step-Ups
Next, we tested the same 50-year target with annual increases in the SIP. With a 5 per cent step-up every year, the required starting amount drops to Rs 5,023 per month. The investment grows each year gradually, reducing the initial load while still reaching the same Rs 100 crore mark by the end of 50 years.
Now, here in the case of beginning SIP with an amount of Rs 5,000, instead of a 5 per cent step-up, if we assume a higher 10 per cent step-up rate, in this case, the Rs 100 crore target is reached in about 46.6 years.
Coming back to the 50-year target, when we increased the annual step-up to 10 per cent, the starting SIP falls even further. In this case, a monthly investment of just Rs 2,937 at the start is sufficient. The faster increase in contributions means more money enters the portfolio earlier, giving compounding more time to work on higher amounts. So, going by the calculations, if you start investing approximately. Rs 2,900 per month and increase your monthly investments by 10 per cent every year, you can reach the bold target of Rs 100 crore corpus in 50 years.
Now, across all scenarios, the return assumption stays the same, no extra money is added, and the results come entirely from how long the money stays invested and how the monthly contributions grow over time.
To sum up, we have assumed a quite aggressive return of 15 per cent p.a. for the analysis. Any change in the returns would alter the numbers. Also, 50 years sounds like a very long time frame, which may not be possible in one's lifetime, but such an investment can be made a part of one’s family legacy to be passed on to the next generation.
Even if Rs 100 crore is not the goal, it is not just about the potential wealth that an investor can make, but about how a disciplined approach can do wonders over the long term in terms of wealth creation.
