Mutual Fund SIP: In an exclusive interview with ET Now, Stockify founder Abhijit Chokshi said that building a corpus of Rs 15 crore in 17 years with a monthly SIP of Rs 1 lakh is possible by increasing the SIP amount annually, rather than keeping it constant.
Chokshi recently addressed a query from a 43-year-old NRI investor based in Dubai who currently invests Rs 1 lakh per month through SIPs and has a mutual fund portfolio worth around Rs 40 lakh. The investors want to build an Rs 15 crore corpus over the next 17 years, with retirement around the age of 60.
Rs 1 lakh SIP alone may fall short of Rs 15 crore goal
Chokshi said the investor has a sufficiently long investment horizon for equity investments, but continuing with a fixed Rs 1 lakh monthly SIP may not be enough to reach the targeted corpus.
“17 years is an excellent time frame when talking about equity investments. And now let’s say if he’s continuing with just one lakh SIP without doing any step up then he will fall short of his goal of 15 cr,” Chokshi said.
This makes the annual increase in the SIP amount an important part of the strategy.
10% SIP step-up can bring investor closer to Rs 15 crore target
According to Chokshi, increasing the SIP contribution by 10 per cent every year could improve the investor’s chances of reaching the Rs 15 crore target.
“But just by adding a 10 per cent step up he can easily reach near his goal of around 15 crores,” he said.
A step-up SIP means the investor does not continue investing the same Rs 1 lakh every month indefinitely. Instead, the monthly contribution is increased annually.
The benefit is that the investor is putting more money to work as income potentially rises, while giving the increased contributions more time to compound.
What happens if Rs 1 lakh SIP is kept fixed?
The importance of a step-up becomes clearer when looking at SIP calculations. At an assumed 12 per cent annual return, a fixed Rs 1 lakh monthly SIP over 17 years would accumulate substantially but would remain well below Rs 15 crore. Calculations published by investment platforms show that a fixed Rs 1 lakh SIP at a 12 per cent annual return can reach around Rs 6.57 crore after 17 years.
This means the Rs 15 crore target cannot simply be viewed as a result of investing Rs 1 lakh every month for 17 years. The investor would need additional contributions, a longer horizon, a higher investment amount or a combination of these factors.
Portfolio has higher exposure to small and mid-caps
Apart from the corpus target, Chokshi also reviewed the investor’s existing mutual fund portfolio.
The investor’s SIP portfolio included Parag Parikh Flexi Cap, HDFC Flexi Cap, UTI Nifty Next 50, Axis Midcap, Tata Small Cap and SBI Small Cap, among other investments.
Chokshi said the portfolio was well diversified but had relatively high exposure to small- and mid-cap funds.
“I believe that the portfolio is a bit more heavy on small and midcaps especially when we are assuming here that the retirement goal is on cards,” he said.
Large-cap and flexi-cap allocation suggested
Given the investor’s retirement objective, Chokshi suggested reducing some exposure to small- and mid-cap funds and reallocating the money towards large-cap or flexi-cap funds.
“I would suggest Praep trim a bit of exposure from small and midcap and reinvest in a large-cap or flexi cap fund,” Chokshi said.
‘Maximum four to five funds’ can simplify portfolio
Chokshi advised the investor to avoid holding multiple funds belonging to the same category when they provide overlapping exposure.
“Instead of having two funds of the same category you can choose one and consolidate your overall portfolio to a maximum of four to five funds,” he said.
(Disclaimer: The above article is meant for informational purposes only and should not be considered as any investment advice. ET NOW DIGITAL suggests its readers/audience to consult their financial advisors before making any money-related decisions.)
