Do you want to know how best to invest Rs 1 lakh per month? Or you have already decided to invest Rs 1,00,000 per month in mutual fund SIP?
Investing in mutual fund SIP is a good decision and you will create a lot of wealth.
Why do I say so?
Because it’s well proven; I have benefited from it greatly myself and also because there are several real life proofs for this (like this one where one person used SIP to create a portfolio of multiple crores). You may accept or not, but the fact is that for many small investors, there are some obvious benefits of SIP investing.
SIP or Systematic Investment Plan is simple – Invest a fixed sum in mutual funds at a regular frequency (mostly monthly). Since most people are incapable of making big lump sum investments (worth several lacs), SIP makes it easy for these people to make small and regular investments every month using their monthly salaries.
So what will be the value of your Rs 1 lakh (100000) monthly investment in mutual fund SIP after several years?
Let’s do some basic calculations:
Value of Rs 1 lakh per month SIP
If you check the historical SIP returns of good mutual funds, you will find that many have given average returns in excess of 15%. In fact, in many cases, it’s possible to find mutual funds giving returns higher than even 18% when periods of around 5 years are considered. But let’s be conservative and assume that the average SIP returns in 10, 15 or 20 years will be about 12% per annum.
Here is what a Rs 1 lakh monthly in a Systematic Investment Plan can do over the years:
- 5 year SIP of Rs 1 lakh monthly = Rs 85 lakh
- 10 year SIP of Rs 1 lakh monthly = Rs 2.3 crore
- 15 year SIP of Rs 1 lakh monthly = Rs 5.0 crore
- 20 year SIP of Rs 1 lakh monthly = Rs 9.6 crore
Those are some really big numbers. And the picture becomes clearer when these figures are compared with the actual investments made:
- 5 year = Rs 1 lakh x 12 x 5 = Rs 60 lakh
- 10 year = Rs 1 lakh x 12 x 10 = Rs 1.2 crore
- 15 year = Rs 1 lakh x 12 x 15 = Rs 1.8 crore
- 20 year = Rs 1 lakh x 12 x 20 = Rs 2.4 crore
Stunning! Isn’t it?
The route of SIP investing can create a lot of wealth for you.
Compared with other options like fixed deposits, PF, etc. (where you won’t get more than 7-8% returns), equity funds offer much better 12-15% average annual returns in the long term.
Real Example – SIP of Rs 1 lakh in Good Mutual Funds
The calculations above were done using simple SIP calculator based on the theoretical assumption that average SIP returns will be 12%. But in reality, neither stock markets nor mutual fund NAVs move in straight lines. The returns fluctuate and don’t follow straight lines.
So here are some real life SIP examples to show how much you would have if you had started investing Rs 1 lakh a month via SIP in good funds years back:
Note – The choice of fund(s) or fund house is just for sharing the concept. It should not be construed as an investment recommendation.
Starting from January 2007, if you had invested Rs 50,000 per month in HDFC Top 200, HDFC Equity and HDFC Prudence, your actual total investment in each would have been about Rs 1.27 crore (up to July 2017).
And the value of your investments would be…
- Rs 2.77 crore in HDFC Top 200 Fund
- Rs 2.94 crore in HDFC Equity Fund
- Rs 3.07 crore in HDFC Prudence Fund
Read those figures again. 🙂
These have been achieved in little over 10 years!
And what if you had started this SIP even earlier, say in January 2000?
In that case, your actual total investment in each would have been about Rs 2.11 crore (up to July 2017).
And the value of your investments would be…
Hold your breath…
- Rs 18.6 crore in HDFC Top 200 Fund
- Rs 17.4 crore in HDFC Equity Fund
- Rs 16.3 crore in HDFC Prudence Fund
Read those figures again. 🙂
These have been achieved in little over 17 years!
We often think it’s difficult to get rich. But the above examples prove otherwise.
Investing in mutual fund SIPs can make you a SIP crorepati even with a normal income. Ofcourse you can become a crorepati really fast if you are ready to invest Rs 1 lakh a month. But even if you cannot invest that much, it’s still possible to achieve that target.
So how to get Rs 1 crore in 15 years? The answer is to invest Rs 20000 every month. And how to get Rs 1 crore in 20 years? The answer is to invest Rs 10000 every month. Plain and simple.
Now ofcourse I have chosen funds that help me prove my point. And there would be several other bad funds too where a systematic investment strategy would have resulted in much lower SIP returns.
But I am trying to highlight the potential of serious wealth creation here. And if you believe in the power of equity, then for most common people, the best way to invest regularly in equity is to do via mutual fund SIPs.
Model SIP Mutual Fund Portfolio
If you wish to create a portfolio of mutual funds by doing a SIP of 50000 per month, it’s suggested not to have too many funds. Going for just 4-6 funds is more than enough.
Depending on one’s risk profile, some possible combinations are:
- Rs 25,000 each in one Large Cap, Balanced, Small&Mid Cap & Index Fund
- Rs 25,000 each in two Large Cap funds + Rs 25,000 Balanced fund + Rs 25,000 Small&Mid cap fund
- Rs 30,000 Balanced fund + Rs 20,000 each in two Large cap funds + Rs 30,000 Small&Mid cap fund
- Rs 50,000 Index Fund + Rs 30,000 Balanced fund + Rs 10,000 each in two Small&Mid cap funds
- Rs 30,000 in Large Cap Fund + Rs 15,000 each in two Small&Mid cap fund + Rs 20,000 each in two Flexi/Multi Cap Funds
There can be an infinite number of combinations.
Suitability of SIP portfolio will differ from one investor to other. If you are not sure about where to invest or looking for the best SIP for Rs 1 lakh per month, it’s better to take help of an investment advisor (can talk to me too).
Note – It’s assumed that if investing Rs 1 lakh in equity funds, you have already taken care of debt investments (via debt funds, EPF, PPF, etc.) in accordance with your asset allocation based investment plan. It is also assumed that you wish to invest for at least 5 years. Anything lower (like 2-3 years) and you should go for debt options or have a very small percentage in equities.
SIPs are really helpful when it comes to investing in equity without much effort or stress. But SIPs can be helpful when it comes to goal based investing too. I have already written at length as to how setting goals can help better manage investments. In fact, it’s the basis of how the remarkably intuitive goal based financial planning works.
You can easily use SIPs to plan for all your goals (download free financial goal worksheet here) and then invest regularly to achieve them. Goals like saving for children’s education, children’s marriage, saving for your house purchase, foreign trips, etc. can be done easily and efficiently through systematic investment plans of mutual funds.
And why leave the biggest goal of them all?
You can even do your retirement planning or early retirement planning using mutual funds.
In addition to the mandatory savings you do for your retirement (via EPF or PPF), you can use SIPs to create a good retirement mutual fund portfolio too. Investing in mutual funds for retirement is a no-brainer if you don’t want to run out of money before you die.
As a professional investment advisor, I do help investors create goal-based financial plans to achieve their real financial goals. If you wish to get yourself a solid financial plan that tells you how much to invest, where to invest and for how long to invest for your financial goals, you can contact me for professional advice.
Here is how to contact me:
- Go through the Services Page to see how I create your financial plan and use the form (at the end of the page) to contact me
- Contact Me Directly using this form
As you must have realized, just knowing where to invest Rs 1 lakh every month is not enough to live a financially fulfilling life that takes care of all your financial goals. Talking about investing regularly in mutual funds, it is more important for you to know how much to invest in SIP to achieve your financial goals.
I will end this post now.
But before I do, let me tell you something important – SIP is no magic that will solve all your financial worries. Also, it does not guarantee high positive returns. But in order to earn high returns offered by equity and that too on a limited monthly income that most people have, taking the SIP route is the best bet.
And don’t worry if you can’t invest a lakh every month. You can still do very well by investing even smaller amounts. To know how much wealth you can create by investing lesser amounts, use below links:
- SIP of Rs 5000 per month in mutual funds, or
- SIP of Rs 10000 per month in mutual funds, or
- SIP of Rs 15000 per month in mutual funds, or
- SIP of Rs 20000 per month in mutual funds, or
- SIP of Rs 25000 per month in mutual funds, or
- SIP of Rs 50000 per month in mutual funds
By investing regularly via SIP in the best mutual funds for long term SIP investment in 2023, you can create a solid portfolio that earns inflation-beating returns without any hassles.
You have all the answers now and don’t need to wonder what would happen if I invest 1 lakh a month in mutual funds. You know exactly how much wealth your small regular systematic investments can create.
So start investing if you still haven’t; or increase your SIP investments if you are already investing in mutual funds. Over the long term, you will do incredibly well.