K V Vardhan | Aug 11, 2015, 06.07 AM IST | Times of India
I’m 40 years old and work as an insurance adviser . I want to build a Rs 1 crore corpus through SIP in equity mutual funds over the next 20 years.Kindly guide me about how much I have to invest monthly and the type of funds I should invest in. –Sathish Kumar D, Chennai
K V VARDHAN REPLIES
The first step to wealth creation comes from planning and one needs to have the conviction to stick to the plan through the journey. Like the ups and downs associated with investing in the stock market, SIP investments using the mutual fund route is also expected to give you volatility . However, investors who have the conviction to remain invested and continue with their SIP investments through these ups and downs, are bound to achieve their financial goals.
In the past decade, the average yearly sensex return was 13.9%, while well performing mutual fund schemes have returned between 13.4% and 22.7%, and SIPs in the same funds returned between and 13.7% and 25.3%. Hence SIP ,a rupee cost averaging method in a volatile market, has the potential to deliver better return than lump sum investments.
Case 1: Let us considering you require of Rs 1 crore equivalent to today’s value, after 20 years.At 6% per annum rate of inflation, on an inflation-adjusted basis, after 20 years you will require approximately Rs 3.20 crore. To achieve this corpus size, you may consider investing Rs 35,000 per month in equity mutual fund SIPs with an expected annual return of 12%.Alternately , you can invest Rs 24,000 per month in mutual fund SIPs with an expected annual return of 15%. If we have to do asset allocation and create a financial plan for the above case with 70% of your investments going into equity funds and 30% nto debt funds, you may have o invest Rs 44,000 per month. In case you plan to have a 50%-50% ratio with equity and debt mu tual funds, you may have to invest Rs 50,000 per month.
Case 2: Let us considering you require of Rs 1 crore at the end of 20 years. In that case you may consider investing Rs 11,000 per month per month in equity mutual fund SIPs with an expected annual return of 12%. Alternately , you can consider investing Rs 7,500 per month in equity mutual fund SIPs with an expected annual return of 15%. With asset allocation of 70% equity and 30% debt you may have to invest Rs 14,000 per month, while with a 50%-50% equity and debt allocation, you have to invest Rs 15,500 per month.
Here, we assume that annually SIPs in debt funds would return 6% post tax, and equity returns are expected at 12%, also post tax. For an equity investor who is aggressive and has higher risk taking ability , 40% of the corpus should be in midand small-cap funds, 30% in multi-cap funds and the balance in large cap investments.For moderate risk taking ability, the combination should be 30% in midand small-cap funds, 35% in multi-cap funds and the balance in large cap investments. And for a conservative investor, with low risk-taking ability, it should be 20% in midand small-cap funds, 30% multicap funds and the balance in large cap investments.
K V Vardhan is CEO, Ultimate Wealth Managers, Bengaluru
Source : http://goo.gl/FILYlm