How To Create Rs 5 Crore Corpus With SIP? Simple Steps

Best SIP strategy: Turning a simple monthly SIP into ₹5 crore might sound like a fantasy, but it’s more achievable than you think. In an exclusive chat with Republic Money, Dhirendra Kumar, Founder & CEO of Value Research, reveals the steps to make this dream a reality.

“With a steady 10-12 per cent annual return from equity mutual funds, hitting Rs 5 crore is absolutely achievable, as long as you remain committed and patient,” he said.

SIPs for Rs 5 crore in different time frames

The amount you need to invest every month depends on two critical factors: time and returns. The longer you stay invested, the lower your monthly SIP requirement, thanks to the power of compounding. Kumar breaks it down:

• 15 years- Rs 50,000 per month at 12 per cent annual returns.
• 20 years- Rs 21,000 per month.
• 25 years- Rs 10,500 monthly.

 "The earlier you start, the easier it gets. Starting early gives compounding more time to work, significantly reducing the monthly SIP requirement," he added.

The required monthly SIP for accumulating Rs 5 crore varies based on the expected rate of return. For a 15-year investment horizon, if the return is 10 per cent, the monthly SIP required is Rs 57,500, while at a 12 per cent return, it reduces to Rs 50,000, and at 15 per cent, it drops further to Rs 42,000. With a 20-year horizon, the required monthly investment decreases to Rs 27,000 at 10 per cent return, Rs 21,000 at 12 per cent, and Rs 15,000 at 15 per cent. Similarly, for a 25-year horizon, the monthly SIP would be Rs 14,500 at 10 per cent, Rs 10,500 at 12 per cent, and Rs 7,000 at 15 per cent.

While higher returns lower the monthly SIP requirement, pursuing very high returns may come with increased risk. Therefore, it's important to maintain a balanced approach rather than chasing overly ambitious returns.

Which mutual funds work best for Rs 5 crore?

When aiming for long-term wealth, equity mutual funds are your best bet. Kumar recommends focusing on a mix of fund types based on your risk appetite.

• Large-cap funds- Ideal for stability and steady growth, these funds are best for investors who prefer less volatility.
• Mid-cap and small-cap funds- These have higher growth potential, but also come with increased risk. They’re suited for those willing to take a chance for higher returns.
• Index funds- A cost-effective, passive way to invest, perfect for those looking for long-term growth at a lower cost.

"Avoid sector-specific or thematic funds unless you have deep expertise in those areas, as they come with concentrated risks," Kumar added.

How to pick the right funds for your Rs 5 crore goal?

First, focus on funds with a solid performance history, ideally over 5-10 years, as consistency is important for long-term gains. Pay attention to the expense ratio, as a lower ratio means more of your returns stay with you.

It’s also important to choose funds that align with your risk tolerance, ensuring you're comfortable with the level of volatility. A seasoned fund manager with a good track record can help steer the portfolio through market ups and downs. Lastly, avoid putting all your money in one sector or asset class. A well-diversified portfolio reduces risk and improves your chances of reaching your financial goals.

Don't let inflation eat up your corpus

Inflation is an investor’s silent enemy, eroding the purchasing power of money over time. At an average inflation rate of 6 per cent, Rs 5 crore today will only have the buying power of Rs 1.67 crore in 25 years. “To stay ahead of inflation, focus on investments that can outpace it—equity funds are key to long-term growth,” says Kumar. To counter inflation, investors should also adjust their target corpus upward to account for future increases in living costs.

What your tax treatment should be?

Taxation can affect the returns from your SIP investments if not planned well. For equity funds, long-term capital gains (LTCG) over Rs 1.25 lakh in a year are taxed at 12.5 per cent. If you sell your equity fund holdings within 12 months, short-term capital gains (STCG) are taxed at 20 per cent.

On the other hand, debt funds have a different tax treatment. LTCG in debt funds is taxed at 12.5 per cent without indexation (meaning you can’t adjust for inflation), and STCG is taxed according to your income tax slab. As for dividends, these are taxed based on your income tax bracket since the Dividend Distribution Tax (DDT) was abolished.

To reduce your tax burden, Kumar recommends holding your investments for the long term, which allows you to benefit from the lower LTCG tax rate. He also suggests considering Equity-Linked Savings Schemes (ELSS).

ELSS not only offer potential for growth but also provide tax benefits under Section 80C, allowing you to save up to Rs 1.5 lakh on your taxable income. For example, if you invest ₹1 lakh in an ELSS fund and hold it for the long term, you could potentially avoid higher taxes on your gains and enjoy tax deductions on your income.

What's the right strategy for your age?

Dhirendra Kumar offered specific advice for a 25-year-old and a 40-year-old aiming to reach Rs 5 crore. For a 25-year-old, he said, "Start early and take full advantage of compounding."

The key is to invest in equity funds for higher long-term growth. He suggests starting with a small SIP amount and increasing it annually with your income through a Step-Up SIP. “Don’t panic during market downturns; they are part of the process,” he added.

For a 40-year-old, Kumar points out that a shorter time frame requires a higher SIP commitment. He recommends balancing the portfolio with both equity and debt funds to manage risk.

“Consider a more aggressive Step-Up SIP strategy to align with your income growth,” he added.