SIP Investment – Strategies to Attain 75 Lakh Rupees in 5 Years

SIP Investment

Saving money is a fundamental aspect of financial planning, enabling individuals to secure their financial future and accomplish various short- and long-term goals. While the methods of investing and the objectives for utilizing savings may differ from person to person, the underlying benefits remain consistent. Through disciplined financial planning and investment, individuals can accumulate savings that provide financial security and pave the way for achieving their aspirations.

This essay explores two effective strategies for accumulating wealth through monthly investment plans over a five-year period, with a target of earning 75 lakh rupees. The first approach involves consistent monthly investments over the entire duration, while the second strategy employs a compounding technique by increasing the investment amount annually. Additionally, it discusses suitable investment avenues, particularly equity mutual funds, and emphasizes the importance of periodic portfolio review for optimizing returns.

Strategy 1: Consistent Monthly Investments

The first method for achieving the target of 75 lakh rupees in five years involves making consistent monthly investments over the entire duration. Assuming an expected annual return of 12 percent, individuals aiming for this goal should invest Rs 93,000 every month. To comprehend the calculation behind this strategy, let’s break it down:

Investment Calculation: Monthly Investment = Rs 93,000 Investment Duration = 5 years Expected Annual Return = 12%

Using the formula for compound interest:

A = P(1 + r/n)^(nt)

Where: A = Total amount accumulated P = Principal amount (initial investment) r = Annual interest rate (in decimal) n = Number of times interest is compounded per unit t t = Time the money is invested for (in years)

Here, P = Rs 93,000, r = 12% (0.12), n = 12 (monthly compounding), and t = 5 years.

Calculating the total amount accumulated:

A = 93000(1 + 0.12/12)^(12*5) A = 93000(1 + 0.01)^(60) A ≈ 93000(1.01)^60 A ≈ 93000(1.822) A ≈ Rs 16,94,460

Thus, by investing Rs 93,000 every month for five years at an annual return of 12 percent, one can accumulate approximately Rs 16,94,460, which falls short of the desired 75 lakh rupees.

Also Read… SIP Investment – Invest 5000 Rs And Get 41,666 Rs Monthly

Strategy 2: Compounding with Increasing Investments

The second strategy involves compounding the investment annually with a gradual increase in the monthly investment amount. Beginning with Rs 70,000 per month, the investment is augmented by 15 percent each year. This strategy leverages the power of compounding and higher investment amounts over time to achieve the target. Let’s delve into the investment and return calculation for this approach:

Initial Investment Calculation: Initial Monthly Investment = Rs 70,000 Annual Increase Rate = 15% Expected Annual Return = 12% Investment Duration = 5 years

SIP CALCULATOR

Using the same compound interest formula as before:

A = P(1 + r/n)^(nt)

Where P, r, n, and t are defined as above.

In this case, the monthly investment starts at Rs 70,000 and increases by 15 percent annually. Let’s calculate the total amount accumulated under this strategy:

Year 1: Monthly Investment = Rs 70,000 A = 70000(1 + 0.12/12)^(12*1) A ≈ 70000(1.01)^12 A ≈ 70000(1.1268) A ≈ Rs 78,876

Year 2: Monthly Investment = Rs 70,000 * 1.15 A = (700001.15)(1 + 0.12/12)^(122) A ≈ 80500(1.01)^24 A ≈ 80500(1.270678) A ≈ Rs 1,02,380

Year 3: Monthly Investment = Rs 80500 * 1.15 A = (805001.15)(1 + 0.12/12)^(123) A ≈ 92575(1.01)^36 A ≈ 92575(1.53788) A ≈ Rs 1,42,439

Year 4: Monthly Investment = Rs 92575 * 1.15 A = (925751.15)(1 + 0.12/12)^(124) A ≈ 106461(1.01)^48 A ≈ 106461(2.053) A ≈ Rs 2,18,474

Year 5: Monthly Investment = Rs 106461 * 1.15 A = (1064611.15)(1 + 0.12/12)^(125) A ≈ 122430(1.01)^60 A ≈ 122430(2.775) A ≈ Rs 3,39,511

By following this strategy, the total amount accumulated at the end of five years is approximately Rs 3,39,511, exceeding the target of 75 lakh rupees.

Suitable Investment Avenues: Equity Mutual Funds

For a five-year investment horizon, equity mutual funds are considered ideal due to their potential for higher returns compared to other investment instruments. Diversification across various funds can mitigate risk while maximizing returns. A suggested portfolio allocation may include:

• Parag Parekh Flexicap: 15%
• UTI Nifty Index Fund: 15%
• ICICI Prudential Bluechip Fund: 15%
• HDFC Large and Mid Cap Fund: 15%
• Kotak Equity Opportunities Fund: 15%
• 360 One Focused Equity Fund: 15%
• Nippon India Growth Fund: 10%

Regular Portfolio Review

To ensure the effectiveness of the chosen investment strategy and portfolio allocation, it is crucial to conduct periodic portfolio reviews, preferably every six months. These reviews help assess the progress of investments, evaluate the performance of chosen funds, and make necessary adjustments to optimize returns and mitigate risks.

Conclusion

Achieving long-term savings goals requires a strategic approach to investment, considering factors such as investment duration, expected returns, and risk tolerance. By employing either consistent monthly investments or compounding with increasing investments, individuals can accumulate substantial wealth over time. Equity mutual funds offer an attractive avenue for investment, providing the potential for significant returns over a five-year horizon. However, regular portfolio review and adjustments are essential to ensure the alignment of investments with financial objectives and market conditions. With prudent financial planning and disciplined investment, individuals can realize their aspirations and secure their financial future.

“Analyze constantly, adapt to changing values and market dynamics before making investment decisions.”