I dream of building a ₹1 crore investment corpus? Mutual funds are one of the most popular routes to long term wealth creation for many investors. Investors could invest a huge amount at one time with a lump sum investment or set aside a fixed amount each month with the SIP.
The right course will depend on the individual’s financial situation, investment horizon and ability to stay invested for the long term. Both approaches can, however, help invest a large corpus with compounding.
How a ₹2 Lakh Lump Sum Investment Could Grow
An investor who puts ₹2 lakh into a mutual fund scheme and remains invested for 35 years. Assuming an annual return of 12%, the investment could grow to nearly ₹1.05 crore.
The calculation is based on a one-time investment of ₹2 lakh, 35 years of investment and a return of 12% on investment after 35 years. And over a long period, the power of compounding can easily increase the value of the initial investment.
But mutual fund returns are market-linked and not guaranteed. The actual returns can be higher or lower depending on market performance and the type of fund selected.
₹10,000 Monthly SIP Could Also Cross ₹1 Crore
Investors who do not have a large amount available for a lump sum investment can consider the SIP route. For example, investing ₹10,000 every month for 21 years could potentially create a corpus of more than ₹1 crore, assuming an annual return of 12%.
The total amount invested over 21 years would be ₹25.2 lakh. The remaining amount would be potential money generated by investment returns and compounding.
The example shows that regular investing can help individuals build wealth over time, even if they don’t have a lot of money to invest at the beginning.
SIP or Lump Sum: Which Option Is Better?
A SIP is suited for long-term investors with regular monthly income that are disciplined in their investment. Investors can build up their portfolio with minimum capital investment in the first place and keep going from month to month by investing a fixed amount every month.
In a lump sum investment, investors can invest a big sum through a bonus, property sale or other sources. When invested for a long period of time the whole amount can be invested from the beginning.
Moreover, investors can also consider a step-up SIP, in which monthly investment increases as income increases. Increasing the amount of SIP can help to achieve investors’ financial objectives faster.
Finally, the choice between SIP and lump sum is largely based on income, available capital, risk tolerance and investment horizon. Investors need to remember that the 12% return shown here is only an example and not a guaranteed return. Mutual funds are subject to market risk and should make investment decisions based on what money is available to make.
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