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Investing in SIPs at 40 to reach 5 crores in 20 years: Can I achieve it?

Ramalingam Kalirajan |6695 Answers |Ask -Follow

Mutual Funds, Financial Planning Expert - Answered on Oct 16, 2024

Ramalingam Kalirajan has over 23 years of experience in mutual funds and financial planning.
He has an MBA in finance from the University of Madras and is a certified financial planner.
He is the director and chief financial planner at Holistic Investment, a Chennai-based firm that offers financial planning and wealth management advice.... more

Asked by Anonymous - Oct 16, 2024Hindi

Sir my age 40 years how much amount invest in sip after 20 years got 5 cr.

Ans: At the age of 40, you are in a great position to start planning for your financial future. Achieving Rs 5 crore in 20 years is definitely possible with disciplined investments. To achieve this goal, investing through SIPs (Systematic Investment Plans) in equity mutual funds can be your best option. Let’s dive into how much you need to invest and how to plan it right.

How Much Should You Invest?
To accumulate Rs 5 crore in 20 years, you need to invest regularly in equity mutual funds. Over long periods, these funds tend to offer higher returns, typically around 10-12% annually.

If we assume a return of 12% per year, you might need to invest around Rs 50,000 per month in SIPs to reach your goal of Rs 5 crore in 20 years.

Now, Rs 50,000 may seem high, but remember, you can start smaller and gradually increase your SIPs. Let’s look at how this can be done.

Start Small, Increase Over Time
If you cannot invest Rs 50,000 right away, don’t worry. You can start with a smaller amount, like Rs 20,000 or Rs 30,000 per month. Then, increase your SIPs every year by a certain percentage, like 10%. This approach is called SIP Top-up, and it allows you to invest more as your income grows. By doing this, you’ll eventually reach the required monthly investment over time.

Why Choose Actively Managed Mutual Funds?
You might wonder, “Why should I choose actively managed funds over index funds or direct mutual funds?”

Actively managed mutual funds are managed by professional fund managers who constantly monitor and adjust the fund’s portfolio. This allows them to perform better in volatile markets. Index funds, while cheaper, do not have this flexibility, which could limit your returns in the long run.

Investing through a Certified Financial Planner who can guide you with regular funds is also a safer option than going for direct mutual funds. The expertise of a CFP ensures your portfolio is well-diversified, managed effectively, and aligned with your financial goals.

Avoiding Direct Funds
Direct mutual funds may seem appealing due to lower costs, but they lack professional guidance. Without a CFP or professional manager, you might miss crucial market signals or fail to rebalance your portfolio at the right time. Investing in regular funds with the help of a Certified Financial Planner ensures that your investments are optimally managed.

Diversify Your Investments
While equity mutual funds should form the majority of your portfolio for growth, it’s essential to diversify your investments across different categories. This could include:

Equity Mutual Funds for long-term growth.

Debt Funds for stability and to reduce risk as you approach your target.

This diversification will protect your investments from market volatility and give you a more balanced portfolio.

Tax Implications of Mutual Funds
Understanding the tax rules is crucial to managing your investments efficiently.

Equity Mutual Funds: Long-term capital gains (LTCG) above Rs 1.25 lakh are taxed at 12.5%. Short-term capital gains (STCG) are taxed at 20%.

Debt Mutual Funds: Both LTCG and STCG are taxed as per your income tax slab.

Knowing these tax rates can help you plan your withdrawals and avoid unnecessary tax burdens.

Key Points to Stay Focused On
Discipline: Make sure to invest every month without skipping your SIPs. Over time, your money will grow, and even small amounts will compound into a larger corpus.

Don’t Panic: Markets can be volatile. However, do not panic and withdraw during market corrections. Stay invested for the full 20 years to reap the benefits of compounding.

Review Regularly: Meet with your Certified Financial Planner at least once a year to review your portfolio. This ensures you stay on track and make adjustments as needed.

Final Insights
At the age of 40, investing Rs 50,000 per month in equity mutual funds through SIPs can help you accumulate Rs 5 crore in 20 years. If this amount seems high initially, start smaller and increase your SIPs each year. Avoid index funds and direct mutual funds to ensure you get the best professional advice and fund management.

Focus on disciplined investing, avoid panic during market fluctuations, and diversify your portfolio for stability.

Best Regards,

K. Ramalingam, MBA, CFP,
Chief Financial Planner,
www.holisticinvestment.in
https://www.youtube.com/@HolisticInvestment

DISCLAIMER: The content of this post by the expert is the personal view of the rediffGURU. Users are advised to pursue the information provided by the rediffGURU only as a source of information to be as a point of reference and to rely on their own judgement when making a decision.