How to Become a Crorepati (10 millions) with SIP Investment

Almost everyone dreams to be a Crorepati. Although achieving the Crorepati goal appears to be a very challenging task, with careful planning, you can achieve it in 10, 20, or 30 years by investing in mutual funds via SIP (systematic investment plan). Most people save money in the bank and do not invest. Saving money in a bank will not grow but it will depreciate (decreasing purchasing power). In India the inflation is around 6%, meaning every year the price of goods increases by 6%. Similarly in the future, the cost of education, housing, and goods will be higher. For example, the cost of an engineering course today is 25 lacs, and the cost of the same course after 10 years will be 45 lacs, almost double. Therefore, to beat this inflation one needs to grow our money by investing in different instruments.

It is believed that investing a small amount regularly won't help you achieve your long-term goals. For this reason, a lot of people keep putting off their investments indefinitely. They will be shocked to learn that by starting a SIP of ₹5000 per month, they may become a Crorepati over 20 years if they try to compare it. SIPs in equity mutual funds are among the most prudent investment strategies for growing a corpus by making small initial investments. Rupee cost averaging also lessens the effect of market changes on SIP investment.

What is SIP?

The Systematic Investment Plan (SIP) is an investment option provided by mutual funds that enables investors to invest a specified amount in a mutual fund scheme regularly, such as once per month or once every three months (from the bank), as opposed to a lump sum. The installment payment is similar to a recurring deposit and could be as small as Rs.500 per month. It's convenient since investors may direct your bank to automatically deduct the specified amount each month.

What is Mutual Fund? 

A mutual fund is essentially made up of the money that a large number of people (or investors) have pooled together. A professional fund manager oversees the management of this fund. It is a trust that gathers funds from numerous participants who have similar financial goals. After that, they invest the funds in securities such as stocks, bonds, money market instruments, gold, etc. Each investor is the owner of units, which are a fraction of the fund's holdings. By determining a scheme's "Net Asset Value, or NAV," the income or gains from this pooled investment are dispersed proportionately among the investors after certain costs have been deducted (expense ratio, 0.8 - 2.25%). Simply, a mutual fund is one of the most feasible investment solutions for the common man/woman/student as it provides the chance to invest in a diversified, expertly managed basket of securities (shares) at a reasonably cheap cost.

How much money is required to invest to become a Crorepati in 10 years?

The next issue would be how much to save and where to invest once you had set your 1 crore target to be accomplished in 10 years. A 4% to 5% tax-free return on investment can be obtained via insurance products. Investors can earn somewhat more than this by investing in fixed deposits. But, it would take decades to reach the 1 crore goal by making a fixed deposit or insurance plan investments. Direct equities or equity mutual fund investments are among the finest strategies to make early investments and become a crorepati. Investing in direct equity (shares) is risky once. If the investor is good at analyzing the stocks, and company management, and understands the annual report then investing in stock is the best option. But many investors, however, don’t have enough time and don't want to take a lot of risks. Thus, investing in equity mutual funds via SIP is the greatest approach to earning 1 crore.

Now the question comes how much money should be invested into SIP mutual funds each month to become a crorepati in ten years? 

1. One can become a crorepati in 10 years by investing ₹30,000 per month for 10 years in a mid-cap mutual fund that yields an average of 18% annualized returns. 

2. Another option is to invest ₹ 23,000 per month for 10 years in a small-cap mutual fund that yields 22% annualized returns. 

3. Another option is to make an investment of Rs 21,400 per month and increase their SIP amount by 10% annually for ten years and in a mid-cap fund.

If anyone can’t save ₹30,000 or ₹23,000 in a month then the investment duration can be increased to 15 or 20 years. 

4. Monthly SIP of ₹7100 for 15 years or SIP of ₹2500 for 20 years in the small-cap fund can make you crorepati.

A mid-cap mutual fund makes investments in companies with a market capitalization of more than 5,000 crore rupees but less than 20,000 crore rupees. Abbott India, Ashok Leyland Ltd., Bata India, Dr. Lal PathLab, Emami Ltd., Escorts Ltd., Fortis Healthcare Ltd., Hindustan Petroleum Corporation Ltd., Hatsun Agro Product Ltd., Kansai Nerolac Paints Ltd. Kajaria Ceramics Ltd., Lupin, L&T Technology, MRF, TVS Motor, Voltas Limited, are some of the mid-cap listed companies on Indian stock exchange.

Companies with a market capitalization of less than Rs 5,000 crore are categorized as small-cap. These companies have a lot of potential for expansion while being relatively small in size. Some of the small-cap companies are Amara Raja Batteries Ltd., Apollo Tyres Ltd., Bajaj Electricals Ltd., Blue Star Ltd., Borosil Renewables Ltd., Castrol India Ltd., Ceat Ltd., E.I.D. Parry (India) Ltd., Exide Industries Ltd., Finolex Cables Ltd., JK Paper Ltd., Metropolis Healthcare Ltd., Orient Electric Ltd., Procter & Gamble Health Ltd., Raymond Ltd., Symphony Ltd., Thyrocare Technologies Ltd., V-Guard Industries Ltd., V.I.P. Industries Ltd., Wockhardt Ltd. 

Types of Mutual funds and their returns

The following table shows different types of mutual funds and their average return. 

Type of Mutual Fund	Investing instrument	Returns
Equity funds	Invest in equities (company shares)	15-24%
Debt funds	Invest in Debt instruments such as company debentures, Bonds	8-12%
Money Market funds	Liquid instruments like Treasury Bills (T-bills), Commercial Paper (CP), Certificates Of Deposit (CD)	6-7%
Index fund	Invest in a stock index like  Nifty 50, Sensex	10-15%
Hybrid funds	A combination of equity and debt	10-15%
Income funds	Fixed-income instruments such as bonds and debentures	8-12%
Fund of funds	A fund of different funds described in this table, gold fund	7-12%
Sectoral funds	Invest in a specific sector like real estate, IT, FMCG, healthcare pharma	5-15%

Apart from above said funds there are other types of funds like Shariah funds and Tax-Saving Funds (ELSS, Equity linked saving scheme). 

Shariah funds: Mutual funds that adhere to Shariah are a form of socially conscious investing that is based on the Shariah or Shariat law of the Muslim religion. The principles of these funds prohibit investment in any business associated with alcohol, tobacco, banking, interest (riba), fixed-income instruments, drugs, pork, weapons, or other immoral activity like gambling, and pornography. Currently, two mutual funds in India adhere to Islamic law, 1. Tata ethical fund and 2. Taurus ethical fund which gives 13% return annually.

Tax-Saving Funds or ELSS funds:

ELSS funds are equity funds that place a significant percentage of their corpus in equity. Under Section 80C of the Income Tax Act, ELSS funds offer a tax exemption from annual taxable income of up to Rs. 1,50,000. All ELSS funds have a lock-in period of three years. Many individuals have used the ELSS scheme recently to take advantage of tax benefits in the old tax regime. Investing in this fund offers a higher potential return (15-20%) than conventional options like PPF (7.1%) and Tax saving FD (5.3%).

Risks associated with mutual funds

Investments are always accompanied by some risks. We have all heard: “Mutual Fund investments are subject to market risks.” Equity-based mutual funds make investments in the stock of companies that trade on stock markets. The value of these funds depends on how well businesses operate, which is impacted by microeconomic issues. These factors include shifting governmental directions, SEBI (The Securities and Exchange Board of India) regulations, the state of the economy, taxation, RBI policies, etc. Importantly, these variables have an impact on stock price and can change the share value. Finally, the most significant query that many investors have posed, is Can a Mutual Fund Company Run Away With My Money? Due to the Mutual Funds structure and the strict regulations by SEBI, this is just not possible.

Which type of Fund has the lowest risk and which has the highest?

Debt funds (liquid fund, ultra short-term fund, and low-duration fund) have having lowest risk and therefore give the lowest return. Midcap and small-cap funds are high-risk funds and give higher returns. It has been seen that in a long-term investment like 10 to 20 years, the risk becomes much less as compared to the short-term (less than 5 years). Depending on the ability of the investor to take the risk, one can take invest their money.

  Most of the people in our area are interested in gold-saving schemes, Money committee systems, or Chit funds which are unregulated deposit schemes called Ponzi schemes, and lose their hard-earned money. Schemes promising returns that are too good to be true should be avoided and invest only in regulated schemes. 

How to invest in mutual funds?

A properly filled-out application form and a cheque or demand drafts must be brought to the branch office, designated Investor Service Centers (ISC), or Registrar & Transfer Agents of the specific mutual fund to invest in it. Further, one may invest with the help of a Mutual Fund Distributor registered with AMFI (Association of Mutual Funds in India). One must first complete the KYC procedure by filling out the required KYC form before participating in a mutual fund scheme, whether through an online platform or a more traditional paper-based one. KYC stands for "Know Your Customer" and is a term used for the Customer Identification Process as a part of the account opening process with any financial entity. 

How Do You Withdraw Money from Mutual Funds?

Depending on the type of fund chosen, mutual funds may provide high liquidity and simple entry/exit options. Hence, investors always have the option to sell their mutual fund holdings (fully or partially) in case of an emergency. Money from a mutual fund plan could be withdrawn through a broker or distributor if you invested with them. If an investor wishes to make an offline withdrawal, then he must fill out and submit a withdrawal request form. The broker would transfer the state to the asset management company (AMC). The redeemed amount will be deposited in the investor bank account in three days (T+2 days).

Conclusion:

The secret to saving a sum of Rs. 50 lacs or 1 crore or Rs. 5 crores or more, is to invest regularly and to take advantage of SIPs in equity mutual funds to help you realize your dream of being a Crorepati. As you can see, if you start with a small amount, you may eventually expand your SIP by a specific amount every year. SIP online calculators may also be used to determine how much and by what percentage to increase payments to accumulate the desired corpus over time.