How to invest Rs 10,000 a month to make Rs 1 crore? Mutual Funds

All you need is focused and displined investment schedule and let the power of compounding do the job. This is where mutual funds and an SIP comes in the picture.

All you need is focused and displined investment schedule and let the power of compounding do the job. This is where mutual funds and an SIP comes in the picture. Pic: Reuters

You might be a graduate starting out with an initial salary of Rs 20,000 per month but that shouldn't stop you from achieving your financial goals. Systematic Investment Plans (SIPs), by investing in mutual funds, are designed just for that.

All you need is focused and displined investment schedule and let the power of compounding do the job. This is where mutual funds and an SIP comes in the picture.

Moreover, your salary is only going to increase every year so you can achieve your goal to reach Rs 1 crore faster if you keep on increasing your investments into SIPs each year in proportion to the increase in your pay.

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This is how:

The general rule of investing is that when you start young, try and invest half of your salary in various intruments available.

In this case, an SIP.

Investing Rs 10,000 a month for a period of 10 years would make your principal investment at Rs 12 lakh but at an expected 15% annual returns in an equity SIP, the expected amount will reach nearly Rs 28 lakh!

However, this is where the power of compounding comes in.

Rs 27.9 lakh after 10 years will become Rs 40.4 lakh in 12 years -- two years more -- and Rs 67.7 lakh in 15 years.

The money, after 18 years of investment will be Rs 1.1 crore and will add another Rs 40 lakh to reach Rs 1.5 crore at the 20th year of your investment.

Also the fact that your salary will increase every year will mean that your Rs 10,000 per month -- which was 50% of your salary -- will in proportion decrease each year. So, at the end of 20th year, Rs 10,000 would actually be only 5-8% of your monthly salary!

Now, if you let this money continue to mulitply in an SIP, then between the 20th and 22nd year, the Rs 1.5 crore will become Rs 2.1 crore and Rs 14.9 crore at the end of 35th year.

And guess what, you will still have five more years for your retirement!