Sometimes, people ask, if Rs. 10 crores corpus can be created by someone salaried through SIP. Yes, it is very much possible. Then, the next question comes …”how much time will it take”. This post tries to answer that.
If you invest through the Systematic Investment Plan (SIP) route in mutual funds and assume an annualized return of ~12%, then Rs. 10,000 per month investment would take 39 years to take your corpus to Rs 10 Crore.
The assumption of a 12 % annualized return is quite reasonable, considering the 14.5% annualized return achieved by UTI Nifty 50 Index Fund (Direct Plan-Growth) since January 2013.
With the same set of return assumptions, Rs. 30,000 SIP amount will take 30 years to reach Rs. 10 Crore and Rs. 50,000 SIP amount will take 26 years to reach Rs. 10 Crore.
But this is an impractical scenario. In 25-30 years, generally, a person’s income increases several times, then it is more appropriate to consider an increase in SIP annually. I think that the 10% annual SIP amount can be increased comfortably. This Step-up will result in accelerated compounding of the portfolio.
With a 10% step-up, Rs. 10,000 SIP will take 31 years to reach Rs. 10 Crore. This is significantly 8 years less than Rs. 10,000 SIP without any step-up. The sweet spot is Rs. 30,000 SIP with 10% Step-up. Here an investor can achieve Rs. 10 Crore in 23.5 years, which means the target is achieved within working life.
You must be thinking that this is all paper workings and may not be achievable. The truth is that the same can be made real by patience and discipline of investing 25-30 years, without withdrawing any amount. I assume 5 to 6 big market crashes in that time frame therefore, the investment would require tremendous emotional maturity to continue SIPs even in bad phases of the market.
You can also look at several SIP scenarios in the table below and select a scenario for yourself.
| SIP Amount per month (initial) | Step-Up: Annual increase in % | ||
| 0% | 5% | 10% | |
| 10,000 | 38 years, 7 months | 35 years, 1 months | 30 years, 11 months |
| 20,000 | 32 years, 11 months | 29 years, 8 months | 26 years, 1 month |
| 25,000 | 31 years, 1 months | 27 years, 11 months | 24 years, 7 months |
| 30,000 | 29 years, 7 months | 26 years, 6 months | 23 years, 5 months |
| 40,000 | 27 years, 3 months | 24 years, 4 months | 21 years, 6 months |
| 50,000 | 25 years, 6 months | 22 years, 9 months | 20 years, 1 months |
| 75,000 | 22 years, 3 months | 19 years, 10 months | 17 years, 7 months |
| 1,00,000 | 20 years, 1 months | 17 years, 10 months | 15 years, 10 months |
Therefore, if you start investing say, at the age of 25 years, with a SIP of Rs. 30,000 per month at a 10% annual step-up, assuming an annualized return of 12% per annum, you will realize Rs. 10 Crore corpus by the age of 48 years.
If you are lucky and getting higher returns, this goal can be achieved even earlier. Now the most important thing…10% annual step-up looks very simple, you must know that with a 10% annual step-up, the Rs. 30,000 SIP amount will be ~Rs. 70,000 SIP in year-10, ~Rs. 1,10,000 SIP in year-15 and ~Rs. 1,80,000 SIP in year-20.
While we are sitting at year 0, year 15 and year 20 SIP amount may look unreasonably higher, but if you ask somebody, who is about 55 years of age, he/she may agree that an increase in income since he/she was 25 years old was even more than 10% per annum. Therefore, it is reasonable to assume that an increase in investment could be at least 10% per year. I agree that an annual increase in income will not always be more than 10%. Some years could be less than 10% or no growth at all. The practical solution would be to increase your SIP proportionate to your income or projected expenditure for the next year.
So if you increase your income by 15%, SIP gets increased by 15%. If you get only 5% growth in income, your SIP gets increased by only 5%. While projecting your annual expenditure, if say your car loan/ home loan is over, you can increase your SIP quota even beyond 10%. Sometimes, it could be less than 10% step-up. The basic premise is to maintain consistency, irrespective of market sentiments.
What do you think? Please let me know.