Explained: Thinking about building a Rs 1 crore corpus? Here’s how much you should invest through SIPs

Mutual fund advisors always recommend investing based on your risk appetite, investment horizon, and financial goals. But before starting a SIP, ask yourself: Are you investing to build a retirement corpus, fund your child’s education, buy a home, or finance your next vacation?

A SIP in an equity mutual fund is one of the most effective ways to achieve long-term financial goals. But an equally important question is: Are you investing enough to reach your target corpus? Have you calculated the monthly SIP required to achieve your financial goal?

Many mutual fund investors are not aware of the amount they need to invest to reach their desired goal or target corpus. If you want to confirm or know the amount you need to invest on a monthly basis to reach your desired corpus, you can use excel to calculate the investment amount.

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Step 1: Know your target amount or corpus

Just put down a number to your target corpus. Say your target corpus is Rs 1 crore. Make sure that your number is actually the amount you want as your target corpus.

Step 2: The time you have in hand to accumulate this target corpus
Just by thinking that you need to accumulate the target corpus of 1 crore in 10 years won’t help. You need to give time to your investments to achieve your target amount. So it is really important to fix a time frame in which you want to achieve target corpus.Step 3: Account for the inflation, adjust the goal amount accordingly
As you have decided your target amount and time frame in which you need to achieve the target corpus, the next step is to account for inflation. The prices of everything you need won’t remain the same throughout the time frame you have decided for achieving target corpus. Take a percentage say around 6% or 8% as the inflation rate.

Let us suppose your target corpus is Rs 1 crore needed to purchase a house and the time frame is 10 years. This is how you will calculate the future value.

Open an excel, click on fx to go to formula. Then select future value (fv) from the formula list.

Here
Rate means : The interest rate period or the inflation rate we are using. We have taken it as 8%.

Nper: The number of years you have to achieve your goal.

Pmt: The number of periodic payments we are making. Here we are not taking any or making any periodic payment. So leave it blank.

Pv : We have taken the current value of the financial goal as Rs 1 crore.

Type: It represents the timing of payment. You can leave the same blank also.

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This step indicates that the future value of your target corpus would be Rs 2,15,89,249.97 crore. In other words, at an inflation rate of 8%, you need Rs 2.15 crore to take care of a goal of Rs 1 crore today.

Step 4: What is the return you are expecting on your investments?
The historical average by the stock market be around 12-15%. If in one year, stock market gave 40% then it is not going to repeat every year.

Step 5: Use PMT valuation or formula
So to know what amount to invest today to reach your target corpus, click on fx bar in excel and search for pmt function.

Rate: This is the rate of return you are expecting. In this example we have used 12%. Since you are investing via a monthly SIP, you will have to divide 12 per cent by 12 months, which will be 0.01 (12%/12).

Nper: This is your investment horizon of 10 years. Since you are making monthly investments you have to multiply it with months (10 years X 12 months = 120)

Pv: Leave it blank as you are not investing any lump sum amount

Fv: Enter the inflation adjusted amount we have calculated earlier.

Type: Enter 1 assuming you will make SIP at the beginning.

This PMT formula gives Rs 92,921 which indicates that you need to make a monthly SIP of Rs 92,000 to create a corpus of Rs 2.15 crore in 10 years.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)

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