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Ramalingam

Ramalingam Kalirajan  |5083 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on Jun 21, 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 - Jun 17, 2024Hindi
Money

I want a corpus of 5 crores in next 7 years. How much daily SIP one should do to achieve this.

Ans: Setting a Goal for a Rs. 5 Crore Corpus in 7 Years
Planning to accumulate a corpus of Rs. 5 crores in 7 years is an ambitious goal. Achieving this requires strategic planning and disciplined investing. Let’s explore how you can reach this target with a daily Systematic Investment Plan (SIP).

Understanding SIP and Its Benefits
A Systematic Investment Plan (SIP) allows you to invest a fixed amount regularly. It’s an effective way to build wealth over time, leveraging the power of compounding and market averaging.

Benefits of SIP
Disciplined Investing: SIP ensures regular investments, fostering financial discipline.

Compounding Effect: The returns earned are reinvested, leading to exponential growth over time.

Market Volatility Management: Regular investments help in averaging out the purchase cost over market cycles.

Calculating the Required SIP Amount
To accumulate Rs. 5 crores in 7 years, we need to calculate the daily SIP amount. Given the following parameters:

SIP Frequency: Daily
SIP Amount: Rs. 12,500
Number of SIP Payments: 2,555 (365 days * 7 years)
Expected Annual Return: 12%
Expected Returns and Investment Analysis
With an expected annual return of 12%, let's analyze how this goal can be achieved:

Total Investment: Rs. 3,19,37,500
Amount at the End of Tenure: Rs. 5,00,53,662.6
Step-by-Step Breakdown
Regular Investments
Investing Rs. 12,500 daily might seem daunting, but it significantly leverages the power of regular investments. Here’s a detailed breakdown:

Consistency: Investing consistently over 7 years is crucial. Missing out on investments can impact the overall returns.

Market Fluctuations: The market will have ups and downs. SIPs benefit from buying more units when prices are low and fewer units when prices are high, averaging the cost.

Power of Compounding
Compounding is a powerful tool in wealth creation. The returns generated on the initial investment amount are reinvested, generating more returns over time. This cycle continues, leading to exponential growth.

Tax Efficiency
Mutual funds, especially equity mutual funds, are tax-efficient compared to other investment avenues. Long-term capital gains (LTCG) tax on equity mutual funds is relatively low, enhancing net returns.

Evaluating Investment Options
Actively Managed Funds
Actively managed funds, where fund managers make strategic investment decisions, can potentially offer higher returns than passive funds. They adapt to market conditions and seek to outperform benchmarks.

Advantages:

Professional Management: Expert fund managers actively manage the portfolio, aiming for superior returns.

Flexibility: They can quickly adapt to market changes, rebalancing the portfolio to optimize returns.

Disadvantages of Index Funds:

Average Returns: Index funds aim to mirror the market index. Hence, their returns are average, not outperforming the market.

Lack of Flexibility: They cannot adapt quickly to market changes, which might limit growth potential.

Regular vs. Direct Funds
While direct funds offer lower expense ratios, regular funds come with advisory services from a Mutual Fund Distributor (MFD) with Certified Financial Planner (CFP) credentials. The guidance can be invaluable in achieving financial goals.

Advantages of Regular Funds:

Expert Advice: CFPs provide tailored advice, helping in selecting the right funds and strategies.

Holistic Planning: Regular reviews and adjustments ensure the investment strategy remains aligned with goals.

Addressing Potential Risks
Market Volatility
Market volatility can affect returns. However, the long investment horizon and regular investing mitigate this risk. SIPs help in averaging the purchase cost, reducing the impact of market fluctuations.

Inflation
Inflation erodes purchasing power over time. The expected 12% return takes inflation into account, ensuring the real value of the corpus is substantial.

Building a Robust Investment Plan
Diversification
Diversifying across different types of mutual funds (large-cap, mid-cap, small-cap, and sectoral funds) can optimize returns and manage risk. A diversified portfolio balances growth and stability.

Regular Monitoring
Regularly reviewing the investment portfolio is essential. Monitoring performance and making necessary adjustments ensures the investment strategy remains aligned with financial goals.

Seeking Professional Guidance
Role of a Certified Financial Planner
A CFP provides expert guidance, helping in creating a comprehensive financial plan. They assist in selecting the right investment avenues, ensuring alignment with financial goals and risk tolerance.

Alternative Strategies
Step-Up SIP
A step-up SIP allows you to increase your SIP amount periodically. This helps in aligning investments with increasing income and inflation, potentially achieving the target sooner.

Lump Sum Investments
In addition to daily SIPs, consider making lump sum investments whenever you receive a bonus or windfall gain. This can significantly boost the corpus.

Evaluating Performance
Benchmarks
Compare the performance of your mutual funds with relevant benchmarks. This helps in assessing whether the fund is performing as expected.

Fund Manager’s Track Record
Assess the track record of the fund manager. Consistent performance across market cycles indicates reliable management.

Adjusting Investment Strategy
Rebalancing
Rebalance the portfolio periodically to maintain the desired asset allocation. This ensures the investment strategy remains aligned with financial goals and risk tolerance.

Switching Funds
If a fund consistently underperforms, consider switching to a better-performing fund. Consult with your CFP before making such decisions.

Long-Term Commitment
Achieving a corpus of Rs. 5 crores requires a long-term commitment. Stay focused on your goal, avoid panic during market downturns, and continue investing regularly.

Final Insights
Reaching a corpus of Rs. 5 crores in 7 years is achievable with disciplined daily SIPs, strategic planning, and professional guidance. Focus on consistent investments, regular monitoring, and staying committed to your financial goals. Diversification, rebalancing, and adapting to market changes are key strategies in this journey. Seek advice from a Certified Financial Planner to optimize your investment strategy and achieve your financial aspirations.

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.
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Ramalingam

Ramalingam Kalirajan  |5083 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on May 29, 2024

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HI I am investing Rs 10000 monthly in SIP from March 2017, when do I expect my corpus to be 1 crore
Ans: Hi Arun,

That's fantastic! Investing Rs. 10,000 monthly since March 2017 shows real dedication! It's tough to give an exact date for your corpus to hit Rs. 1 crore because of two main reasons:

Market Returns: Mutual fund returns go up and down. No one can predict the future.

SIP Duration: I don't know how long you kept up your SIPs after March 2017.

But hey, we can still make an estimate! Here's how:

SIP Calculators: Many websites have SIP calculators. You can enter your investment amount, expected return rate, and investment period. Play around with these to see how long it might take to reach your goal.

Past Performance (not a guarantee): Check the past performance of your mutual funds (on their websites or financial portals). This might give you a clue about how your corpus might have grown. But remember, past performance doesn't guarantee future results.

Some more things to think about:

You're Doing Great! Investing Rs. 10,000 monthly since 2017 is a big accomplishment! You're on track to building a serious nest egg.

Stay Invested for Long Term: The magic of compounding really works best in the long run. Try to stay invested for as long as possible to benefit from market growth.

Talk to a CFP: A Certified Financial Planner (CFP) can create a personalized plan to help you reach your financial goals. They'll consider your risk tolerance, investment horizon, and other financial aspects.

Keep up the excellent work, Arun! By staying on track and maybe getting some professional advice, you can increase your chances of achieving your financial dreams.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in

..Read more

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DISCLAIMER: The content of this post by the expert is the personal view of the rediffGURU. Investment in securities market are subject to market risks. Read all the related document carefully before investing. The securities quoted are for illustration only and are not recommendatory. Users are advised to pursue the information provided by the rediffGURU only as a source of information and as a point of reference and to rely on their own judgement when making a decision. RediffGURUS is an intermediary as per India's Information Technology Act.

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