Can you earn ₹2 cr in 5 years by investing ₹2 lakh per month in SIPs?
Premium- You desire to accumulate ₹1.35 crore in about 10 years. The monthly systematic investment plan (SIP) required for you to get there would be closer to ₹60,000 rather
I will retire in May 2032 and to garner a corpus of ₹1.35 crore, I would like to invest ₹45,000 per month in mutual funds. I also want to park a portion (25-30%) of the contribution in debt funds. Will it be prudent to book profit on one or two occasions during the intervening period between now and my retirement and park the amount in a select debt fund or reinvest in the best performing funds.
—Amitava Majumder
You desire to accumulate ₹1.35 crore in about 10 years. The monthly systematic investment plan (SIP) required for you to get there would be closer to ₹60,000 rather than ₹45,000 you are planning to invest now (assuming a 12% portfolio return over the period). So, you would need to raise your investment amount gradually to reach the target. This so-called step-up SIP, can be used effectively in your situation. You are proposing a portfolio that is 75:25 in terms of equity to debt.
For a 10-year investment horizon, that would make it a moderately risky portfolio, and given that you are close to retirement than you are to the start of your career,, that is a fair risk profile to adopt. You can have a compact six fund portfolio with four equity funds and two debt funds with the amount split 75:25 between the two asset classes. For equity funds, you can go with Axis Bluechip fund, Mirae asset emerging bluechip fund, Parag Parikh Flexi cap fund (or Canara Robeco fund if the PPFAS fund is not open for investment), and Axis midcap fund. For debt funds, you can choose HDFC Corporate bond fund and ICICI Credit risk fund for the time period of your investment.
Given that you have a balanced portfolio between equity and debt asset classes, this should be a straightforward proposition. If at any point, you feel that the markets are high and you want to book profits, it is likely that at such a point your portfolio’s asset allocation is skewed towards equity. All you would need to do then is to ‘rebalance’ your portfolio and move enough money from your equity portfolio to your debt portfolio such that the asset balance is back to 75:25. You can also do this exercise periodically (once a year) even if markets are not heating up. In some situations, you may be moving money from your debt funds to equity funds, which would also be a fair move if equity markets are in a downturn.
I am 45 years old and have an aggressive risk appetite. Can I invest ₹2 lakh per month in SIP and get a corpus of ₹2 crore after five years?
— Name withheld on request
If you invest ₹2 lakh per month for 5 years (total of 60 installments), you would have invested ₹1.2 crore over the period. If you assume a 12% annualized return over the period, you can expect to have ₹1.7 crore at the end of the investment tenure.
To reach a goal of ₹2 crore given the same assumptions, you would need to invest ₹2.4 lakhs a month. Both these calculations assume a high-risk portfolio filled with equity investments, which is not an ideal match for the time frame of five years. Any portfolio design for such a short to medium time frame will require the addition of debt funds to keep it balanced. Hence, if your risk appetite is truly aggressive you can go for an all-equity portfolio such as UTI Nifty index fund, Canara Robeco Flexicap fund, Axis midcap fund, and SBI small cap fund. If you would like to moderate your risk level a bit in keeping with your investment time frame, you can replace the smallcap fund with a debt fund such as HDFC Credit risk debt fund.
Srikanth Meenakshi is co-founder, PrimeInvestor.in.
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