Creating a corpus of Rs 1 crore through Systematic Investment Plans (SIPs) is one of the most sought after questions in personal finance today. Here’s how much you need to save and invest through SIP to reach that Rs 1 crore mark. SIPs are a tool for wealth creation, particularly in a fast-growing economy like India. As the world faces economic slowdowns, India GDP continues to rise, making it an ideal time for investors to consider disciplined savings.
How much should your SIP be?
There are two ways to determine your ideal SIP amount:
Depending on your current savings capacity
If you can only save Rs 2,500 a month, investing this amount for 20 years with an expected return of 12 percent per annum could increase your investment to about Rs 25 lakh. However, if this doesn’t meet your financial goal, you may need a different approach.
Goal-based planning
If your goal is to accumulate Rs 1 crore in the next 20 years with the same expected return of 12 per cent, you will need to invest around Rs 10,000 per month in SIP. While the first approach offers more flexibility, the second requires disciplined savings, ensuring you meet your target amount every month.
Accounting for inflation
However, simply following these approaches may not be enough. The impact of inflation should be considered as it can significantly erode your returns. For example, even if you accumulate Rs 1 crore after 20 years, a 6 per cent inflation rate would reduce your purchasing power to just Rs 32 lakh in today’s terms.
The solution: advanced SIPs
One way to combat inflation and ensure that your investment retains its value is to opt for a Step-Up SIP. In this approach, you increase your SIP contribution annually by a fixed percentage, say 10 per cent. For example, if you start with Rs 10,000 in the first year, your SIP would increase to Rs 11,000 in the second year, Rs 12,100 in the third year, and so on. Over 20 years, this gradual increase can make a significant difference, helping you reach your Rs 1 million target while staying ahead of inflation.
Plan realistic financial goals
Relying solely on standard SIP projections may not always be the best approach for long-term financial goals. A Step-Up SIP can help ensure that your investments grow at a rate that outpaces inflation, allowing you to build the wealth you need.
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