How long a Rs 5,000 monthly SIP takes to build a Rs 10 lakh fund

For those who want to build a Rs 10 lakh fund in a few years but cannot invest a large sum at once, a systematic investment plan (SIP) is a simple option. By saving just Rs 5,000 every month and investing regularly, a sizeable fund can be built. It does not require a very long wait.

Equity mutual funds are generally taken to give average returns of 12 per cent over the long term. At that rate, a regular SIP of Rs 5,000 a month takes about 8 years and 10 months, or roughly 9 years, to reach Rs 10 lakh. Over this period the investor gains more than Rs 4.75 lakh in wealth.

The calculation at 12 per cent returns is as follows. The monthly SIP is Rs 5,000 and the annual return is taken as about 12 per cent. The total period is 8 years and 10 months, or 106 months. The total investment in this time is Rs 5,30,000, the total return or gain works out to Rs 4,75,800, and the fund at maturity is Rs 10,05,800.

If the stock market performs well and the rate of return rises, the target can be reached sooner. At 12 per cent returns it takes about 8 years and 10 months. At 15 per cent it takes about 7 years and 9 months, and at 18 per cent about 6 years and 11 months.

For those who want to reach the Rs 10 lakh target even sooner, a step-up SIP is a better option. Here the investment amount is raised every year by a fixed percentage, such as 10 per cent. Suppose an investor puts in Rs 5,000 a month in the first year, Rs 5,500 in the second year and Rs 6,050 in the third. At 12 per cent annual returns, the Rs 10 lakh target can then be reached in just 6 years and 8 months.

It is essential to understand market risk before investing, and it is always advisable to consult a financial adviser before taking any financial risk.