Chart: How to reach Rs 1 cr in savings with Rs 10,000 monthly investment

A Rs 30,000 monthly investment at 12 per cent annual returns will roughly take around 12 years to reach your first Rs 1 crore and 20 years to reach Rs 3 crore. However, if you can increase your monthly SIP amount by 10 per cent every year you can reach the same Rs 1 crore in 10 years and Rs 3 crore in 16 years.

How To Reach Your Target Amount (with No Annual Increase in SIP Investment) as explained by FundsIndia

Systematic Investment Plan (SIP) is an investment route offered by Mutual Funds wherein one can invest a fixed amount in a Mutual Fund scheme at regular intervals– say once a month or once a quarter, instead of making a lump-sum investment. The instalment amount could be as little as Rs 500 a month and is similar to a recurring deposit. It’s convenient as you can give your bank standing instructions to debit the amount every month.  From this money, the units of the funds are purchased at the applicable NAV (net asset value) which then earns returns based on the portfolio of stocks that the funds hold. 

"Investing in mutual funds through the SIP route helps investors to average their cost of investments. Also, it helps in inculcating a habit of investing as each month, a portion of your salary is deducted from your account and invested. It also goes well with your money cycle - you earn every month, you spend every month and you invest every month," said Value Research in a note

How To Reach Your Target Amount (with 10% Annual Increase in SIP Investment)?

The SIP table shows how long it will take for you to reach different target amounts (eg Rs 1cr, Rs 2cr etc) assuming 12% annual returns for different SIP amounts and annual increase percentages (10%).

Why SIP is better than lumpsum? 

Value Research believes SIPs solve the two main problems that prevent investors from getting the best possible returns from mutual funds. These are:

People try and time the market to buy at the bottom and sell at peaks

People invest at irregular intervals and then stop investing when markets fall

"Since SIPs mean regularly investing with a fixed sum regardless of the NAV or market level, investors automatically buy more units when the markets are low. This results in a lower average price, which translates to higher returns. If you invest a large sum in one go, you could end up catching a high point in the equity markets. This would mean that you would invest at a high NAV and reduce your gains if the market falls," noted Value Research.

 SIPs help people stay invested through the ups and downs of the market. Investors inevitably try to time the market. When the market falls, they sell and stop investing. When it rises, they invest more. This is the opposite of what should be done."An SIP puts an end to all this by automating the process of investing regularly. It eliminates the mental load of deciding when to invest and leads to better returns," noted Value Research.

Indian Equities have outperformed all other asset classes over the long run; 16% returns over 20 years

82% of the time Indian Equities gave more than 10% returns in 7 years

No instance of negative returns over 7 years - Lowest return is 5%

Investing in Indian Equities with a time frame of 7+ Years has led to a good experience

Year wise Lumpsum Returns of Nifty 50 TRI (2000 to 2022), as shown by FundsIndia

In most instances a 7 year time-frame increases the odds of returns > 10%. In rare instances where returns were < 10% extending the time frame by 1-2 years helps.

Source: MFI, FundsIndia Research. How to read the table: Column 1 indicates the starting date of investment. The Row named ‘Year’ indicates the time frame on investment – 1Y, 2Y, 3Y etc. For eg: If you invested on Jan-03, then your 5-year annualized return is 44%, 6 year annualized return is 20% etc