I am 33 years old and working in a private firm. I do not have any exposure to Mutual Funds (MFs) but I want to start a monthly SIP (Systematic Investment Plan). I can invest around 5,000 per month, but I am unable to select the right fund. i want to submit 50 lakh in the next 10 years. Will I be able to achieve my goal through monthly SIP? 5,000?
– Name withheld on request
Your decision to start investing in MFs is right and it will help you build wealth in the long run.
Since you are investing in MFs for the first time, it is always better to start with a large cap-oriented equity fund for your 10-year target.
If we assume that your SIP gives a return of 10% per annum, then you will be able to deposit a reasonable amount 10 lakhs and at the rate of 12% p.a., you will deposit a corpus of 11 lakh at the end of 10 years. Hence, the monthly SIP of 5,000 may not be enough to achieve your goal.
You have to invest approx 22,500 per month to achieve your goal which is much higher than your planned investment. One of the best ways to achieve this is to increase the SIP amount every year.
If you increase the SIP amount by 35% annually then you will be able to reach the target at the end of 10 years.
In this case your monthly SIP next year will be 6,800, and a year after that would be 9,000. Similarly, you can increase the SIP amount every year in future. This strategy will also help you plan your future investments and be less stressful on your finances.
The funds you can start investing through SIP are – UTI Nifty Index Fund, Mirae Asset Large Cap Fund, Canara Robeco Bluechip Fund, Parag Parikh Flexi Cap Fund and Mirae Emerging Bluechip Fund.
Avoid investing in mid-cap and small-cap funds at this stage as you are just starting your investment journey in equity mutual funds.
You should also avoid sectoral and thematic funds as they carry additional risk.
Harshad Chetanwala is the co-founder of MyWealthGrowth.com.
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