A mutual fund Systematic Investment Plan (SIP) could be a suitable choice for building a large corpus without huge investments at one go. SIPs enable you to invest a small, predetermined amount at periodic intervals in various schemes.
It helps you accumulate wealth over time through the power of compounding and market growth. Let’s take a look at how you can create a corpus of Rs 25 lakh in five years with a disciplined SIP approach.
1. Start With A Clear Target
The first thing to determine is your goal. In this case, it is Rs 25 lakh in five years. The second thing to decide is how much you need to invest every month in order to achieve the target. Although the actual amount is subject to the performance of the funds you choose and the market, you can get a fair idea using an online SIP calculator.
2. Investing In Mutual Funds
Selecting the right funds is crucial. Debt mutual funds usually involve lower risk than equity-oriented funds, making them a good choice for conservative investors. Historically, these funds have delivered annualised returns of around 10% to 13% over five years.
Assuming an average return of 12% per year, a monthly SIP investment of Rs 30,400 in debt mutual funds can help accumulate a corpus of around Rs 25 lakh in five years.
You can also diversify your portfolio through a mix of schemes like equity funds, debt funds, hybrid funds and multi-asset funds, among others, for higher returns with lower risks.
3. Stay Invested, Let Compounding Work
Compounding is what makes SIPs powerful. Each instalment earns interest and the interest in turn begins to earn more with the passage of time. So, whenever markets suffer downturns, just keep calm. You can also opt for an SIP top-up facility, where you raise your monthly investment by a certain percentage every year.
A step-up SIP scheme could also be helpful to achieve your target of Rs 25 lakh even before five years. Many mutual fund plans offer a step-up feature where you can increase your investments by a certain percentage at periodic intervals. This will accelerate your journey to achieve the financial goal.
4. Explore Gold As A Hedge
Apart from the SIPs, diversification of portfolio with other assets can also help to minimise risks, while ensuring higher returns. Generally, gold and the government-backed Public Provident Fund (PPF) scheme are preferred by Indian investors.
Historically, gold has been regarded as a safe-haven asset. In the last one year, gold prices have rallied more than 63%. Over the long term, gold has delivered an average annual return of around 10% between 1995 and 2024, making it more attractive than traditional fixed deposits.
5. PPF For Stability
Similarly, the PPF scheme offers a secure return at an interest rate of 7.1% per annum. This could be a suitable option for investors looking forward to long-term investments with secure returns. The scheme comes with a 15-year lock-in period and an investment cap of Rs 1.5 lakh per annum.
Reaching a target of Rs 25 lakh in five years using SIPs will not appear challenging if you follow a disciplined approach. All you need is a proper investment plan with realistic calculations.
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