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25 Lakhs in 7 Years: How Much Daily SIP Should I Invest?

Ramalingam Kalirajan |7911 Answers |Ask -Follow

Mutual Funds, Financial Planning Expert - Answered on Aug 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

Question by MR. on Aug 13, 2024Hindi

I want a corpus of 25 lakh in next 7 years. How much daily SIP one should do to achieve this.

Ans: Planning for your financial goals is a commendable step. Accumulating a corpus of Rs. 25 lakhs in the next 7 years requires careful planning and disciplined investing. A systematic investment plan (SIP) can help you achieve this goal by investing small amounts regularly.

Let's explore how you can plan this effectively.

Understanding SIP and Its Benefits
SIP is an investment strategy where you invest a fixed amount regularly, typically monthly or even daily, into mutual funds. It allows you to benefit from the power of compounding and rupee cost averaging. This disciplined approach ensures that you invest consistently, regardless of market conditions, leading to wealth creation over time.

Estimating the Required SIP Amount
To achieve a corpus of Rs. 25 lakhs in 7 years, you need to decide on a suitable SIP amount. The amount you invest daily will depend on several factors:

Expected Rate of Return:

The rate of return plays a significant role in determining how much you need to invest. Historically, equity mutual funds have provided an average return of 10-12% per annum. However, this is not guaranteed, and the actual returns may vary.
Investment Horizon:

Your investment horizon is 7 years. While this is a decent time frame for equity investments, the longer the horizon, the better the chances of achieving higher returns.
Risk Appetite:

Your risk tolerance will determine the type of funds you choose for your SIP. Higher risk may lead to higher returns, but it also increases the potential for losses.
Calculating the Daily SIP Amount
To accumulate Rs. 25 lakhs in 7 years, you need to calculate the daily SIP amount considering a reasonable rate of return.

You can start with an approximate estimate based on an assumed rate of return. Let’s assume a rate of return of around 12% per annum, which is a moderate expectation for equity-oriented funds.

Investment Target: Rs. 25 lakhs
Investment Horizon: 7 years (2,555 days)
Expected Rate of Return: 12% per annum
With these assumptions, a certified financial planner could estimate the required daily SIP amount.

Adapting to Market Conditions
The financial markets are unpredictable. Your actual returns may be higher or lower than the expected 12%. It's important to regularly review your SIP and adjust it if necessary.

If you notice your investments underperforming, you might need to increase your SIP amount or extend the investment horizon.

Diversifying Your SIP Investments
To balance risk and reward, consider diversifying your SIPs across different types of mutual funds. Depending on your risk appetite, you can choose from:

Equity Funds:

These funds have the potential for high returns, especially over a 7-year horizon. They invest primarily in stocks and are suitable for long-term goals like yours.
Hybrid Funds:

These funds invest in both equities and debt instruments. They offer a balance between risk and return, making them a good option for moderate risk-takers.
Debt Funds:

These are lower-risk funds that invest in fixed income instruments. While they provide stability, the returns are generally lower compared to equity funds.
Avoiding Common Investment Pitfalls
When planning your SIP, it’s essential to avoid some common mistakes:

Overestimating Returns:

Be realistic about expected returns. Avoid assuming overly high returns, as this can lead to under-investing.
Ignoring Inflation:

Inflation erodes purchasing power over time. Ensure that your SIP amount is sufficient to meet your goal even after accounting for inflation.
Not Reviewing Your Portfolio:

Regularly review and rebalance your portfolio to ensure it aligns with your goals. Market conditions and personal circumstances change, and your investment strategy should adapt accordingly.
Additional Strategies for Achieving Your Goal
Besides SIP, consider these strategies to enhance your corpus:

Top-Up SIP:

Increase your SIP amount periodically, say annually, by a fixed percentage. This ensures your investments keep pace with inflation and your increasing income.
Lump-Sum Investments:

If you receive a bonus or any other windfall, consider investing it as a lump sum in your existing SIP funds. This can give a significant boost to your corpus.
Tax Efficiency:

Choose tax-efficient funds that align with your financial goals. Equity funds held for more than one year are subject to long-term capital gains tax, which is lower than short-term gains tax.
Emergency Fund:

Ensure you have an adequate emergency fund in place. This prevents the need to dip into your SIP investments in case of unforeseen expenses.
Final Insights
To accumulate Rs. 25 lakhs in 7 years, you need to plan your daily SIP amount carefully. A moderate rate of return, combined with disciplined investing, can help you achieve your financial goal.

Regularly review your investment strategy, and be prepared to make adjustments as needed. Diversifying your investments and staying committed to your SIP plan are key to success.

Consider consulting with a Certified Financial Planner to tailor these strategies to your specific situation. They can provide personalized guidance and ensure you’re on track to meet your financial goals.

Best Regards,

K. Ramalingam, MBA, CFP

Chief Financial Planner

www.holisticinvestment.in

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.