Hello sir I m doing sip of 6.k monthly from last one year
Nippon India small cap fund 2k
HDFC midcap opportunity 1k
Quant small cap fund 1k
SBI contra fund 2.5k
So please guide me how much I have to invest to reach 50 lakh in next 10 yrs.or do I need to change any investment?
Ans: Firstly, commendations on taking proactive steps towards securing your financial future by investing in SIPs. It’s great to see your commitment and consistency in building wealth through mutual funds.
Current Investment Analysis
Your Current SIPs:
Nippon India Small Cap Fund: Rs. 2,000 monthly
HDFC Midcap Opportunities Fund: Rs. 1,000 monthly
Quant Small Cap Fund: Rs. 1,000 monthly
SBI Contra Fund: Rs. 2,500 monthly
Total Monthly Investment: Rs. 6,500
Calculating Future Value of Current Investments
To determine if your current SIPs will help you reach your goal of Rs. 50 lakh in 10 years, let's calculate the future value. Assuming an average annual return of 12%, the future value of your SIP can be estimated using the formula for the future value of an SIP:
Future Value (FV) = P × [ (1 + r)^n - 1 ] / r × (1 + r)
Where:
P is the monthly investment (SIP amount)
r is the monthly rate of return (annual return / 12)
n is the total number of investments (months)
For a 12% annual return:
r = 12/100 / 12 = 0.01
Total months n = 10 × 12 = 120
Let's calculate the future value for each SIP:
Nippon India Small Cap Fund
P = 2000
FV = 2000 × [ (1 + 0.01)^120 - 1 ] / 0.01 × (1 + 0.01)
FV = 2000 × [ 1.01^120 - 1 ] / 0.01 × 1.01
FV = 2000 × 232.97 × 1.01
FV ≈ 4,70,000
HDFC Midcap Opportunities Fund
P = 1000
FV = 1000 × 232.97 × 1.01
FV ≈ 2,35,000
Quant Small Cap Fund
P = 1000
FV = 1000 × 232.97 × 1.01
FV ≈ 2,35,000
SBI Contra Fund
P = 2500
FV = 2500 × 232.97 × 1.01
FV ≈ 5,87,000
Adding these, the total future value of your current SIPs will be:
4,70,000 + 2,35,000 + 2,35,000 + 5,87,000 = 15,27,000
Gap Analysis and Required SIP
Your goal is to accumulate Rs. 50 lakh, but your current SIPs will accumulate approximately Rs. 15.27 lakh. This leaves a shortfall:
Required Amount: Rs. 50 lakh
Current Future Value: Rs. 15.27 lakh
Shortfall: Rs. 50 lakh - Rs. 15.27 lakh = Rs. 34.73 lakh
To reach Rs. 50 lakh, you need to invest more. Let’s determine how much you need to invest monthly to bridge this gap.
Using the SIP future value formula, let's solve for P (the required monthly SIP amount) to reach Rs. 50 lakh:
50,00,000 = P × [ (1 + 0.01)^120 - 1 ] / 0.01 × (1 + 0.01)
50,00,000 = P × 232.97 × 1.01
50,00,000 = P × 235.30
P = 50,00,000 / 235.30
P ≈ 21,250
You need to invest approximately Rs. 21,250 per month to reach your goal of Rs. 50 lakh in 10 years, assuming a 12% annual return.
Reviewing Your Current Investments
Fund Performance and Diversification
Nippon India Small Cap Fund: Good for aggressive growth, but high risk.
HDFC Midcap Opportunities Fund: Balanced growth and risk.
Quant Small Cap Fund: Another high-risk, high-return option.
SBI Contra Fund: Contrarian approach, can offer good returns in underperforming sectors.
Your portfolio has a mix of small-cap, mid-cap, and contrarian strategies. It’s relatively aggressive, which is suitable for a long-term horizon but may need some balancing for risk management.
Suggestions for Portfolio Adjustment
Increase Investment Amount
To reach your goal, increase your monthly SIP to Rs. 21,250. You can adjust the distribution among existing funds or add new funds.
Diversification
Consider adding large-cap or multi-cap funds to diversify and reduce risk. Large-cap funds typically offer more stability and can balance the high-risk small-cap and mid-cap funds in your portfolio.
Why Actively Managed Funds
While index funds are popular, actively managed funds can provide better returns due to the expertise of fund managers. They can make strategic decisions and adapt to market conditions, potentially outperforming the index.
Direct vs. Regular Funds
Investing in direct funds saves on expense ratios, but it requires active management and market knowledge. Regular funds, through a Mutual Fund Distributor (MFD) with Certified Financial Planner (CFP) credentials, provide professional advice and management, which can be beneficial.
Conclusion
To achieve your goal of Rs. 50 lakh in the next 10 years, you need to increase your SIP to Rs. 21,250 per month. Diversify your investments to include large-cap or multi-cap funds to balance risk. Consider the benefits of actively managed funds and professional advice through regular funds.
Best Regards,
K. Ramalingam, MBA, CFP,
Chief Financial Planner,
www.holisticinvestment.in
