How to Make 1 Crore in 10 Years by SIP

• The investors wants to reach Rs.1 crore in 10 years

• We assume that the investor does not have any upfront lumpsum to pay up

• We also assume that the SIP is on a diversified equity giving 15% over 10 years.

With these problem statement, you can work backword and estimate that if you invest Rs.36,335 per month, you can actually grow your money to Rs.1 crore in 10 years. At the end of 10 years, you would have invested Rs.43.20 lakhs as principal and the balance amount will come in the form of returns on the fund.

However, Rs.36,335 investment per month is not a small sum and most people may find it difficult to set aside this kind of a sum. Then what is the option? Remember that what always works in favour of a SIP is time. Longer you run the SIP, the better and more profitable it is. Therefore, if you really want to seriously create wealth then make time work in your favour.

We will just take a detour and see how much you would have had to invest for longer periods of SIP to reach Rs.1 crore. Check the table below.

Now that you’re aware of the benefits, you can start investing in SIP by following the below steps:

1. A SIP works most effectively when you are invested in equity funds. SIPs on debt funds cannot add much value because the power of compounding work much better on equity funds. It is only in equities that time works better than timing over the long run and hence the focus of SIP should be on equity funds and not on debt or liquid funds.

2. SIP should be regular and systematic as the name suggests. Once you start a SIP, don’t stop it in between. When you stop the SIP, the compounding gets disrupted. Unless it is an absolute emergency, do not disrupt the SIP. Above all, always keep the SIP as rule based and as passive as possible. Don’t try to time SIPs with highs and lows.

3. Check you can have funds on the date you set the SIP. Set a comfortable date for your SIP each month and ensure that you do not miss a single SIP. If you are opting for the ECS option for SIP ensure the bank account is funded well in advance. Don’t keep the SIP date too close to your salary dates.

4. Where should you invest the SIP within equity funds. Your SIP should be ideally focused on diversified funds or in flexi cap funds. Avoid SIPs in thematic funds, small cap funds, mid-cap funds or sectoral funds. Long cycles of sectors and themes can result in underperformance over prolonged periods of time causing unnecessary pressure.

5. Try out a stepped-up SIP if you cannot monitor your SIP amounts on a regular basis. That is because, your income typically increases on an annual basis, or at least in most of the years. What you need to focus on is that you step up the SIP so your savings and investment grow with your income levels. This also creates a reserve in case of any negative events.

6. The golden rule is to always opt for a growth plan and not for a dividend plan in SIPs. Growth plan offers automatic reinvestment of returns and that is auto compounding. In case of dividend funds, the dividends must be invested at the same yield, which never really happens in most of our cases. The best way out is to focus on growth funds. It is also more tax efficient compared to dividend plans.

7. Redeem the SIPs when the goals are approaching. However, you need to plan the redemption of your SIP smartly. For example, if you redeem in one shot then you pay 10% on capital gains in excess of Rs.1 lakh per year. A better choice is to spread redemption over 5 years to claim the benefit each year. Try to get your equity into debt or liquid funds at least 1 year before the goal to avoid negative surprises.

8. The simplest way to make SIPs purposeful is to tag SIPs to goals. If you have 5 goals, then don’t try and spread across 25 SIPs. That is just too complex to handle. Stick to 6-8 SIPs and ensure that each SIP is specifically tagged to specific goals. It ensures the purpose of each SIP is clearly defined so there is no confusion.

9. Review SIPs on a regular basis; perhaps every year. Ask some very fundamental probing questions like; are the funds outperforming the peer group, are they consistent, do they better the index; and the list can go on. This review helps you to decide on which SIPs to continue and which shift or terminate. If you are stuck in a bad SIP, you don’t have to be stuck forever. Use your discretion and think with your feet.

10. Lastly, ensure that SIPs are aligned to long term goals. For example, as you age your risk appetite comes down and so should your equity allocation. If the SIPs in equity are becoming redundant to your asset mix, do a rethink. The answer is to shift from equity SIP to a debt SIP or even a liquid SIP if warranted. It is as simple as that.

These are just suggestive rules that can really help you make a success of your SIP.