Q: My financial goal is to reach Rs 1 Crore in 10 years and I am planning to do this by investing an initial amount of Rs 5 Lakh through mutual funds. With India booming and with great scope for foreign investments in the coming years, Can I expect an average annual return of 25% or more?
If not, please let me know the capital amount needed to achieve my target considering the current economic scenario and performance of the index.
A: Yes, you can reach your target but your financial plan requires some modification.
First of all, we believe that the correct expectation for long-term ( 7 years or more) return in equity funds is 12% per annum (as of 2019).
Secondly, markets can be volatile in the short term (5 years or less) and thus, historical returns tend to be in the 12% range rather than a best case range of 25% or more. Good and actively managed equity funds tend to do better, on average, than the index. 2018 has however been different.
Keeping this in mind, you can reach your financial goals with greater confidence.
To achieve Rs 1 Crore in 10 years, you will have to start with more than Rs 5 Lakhs, approximately Rs 33 Lakhs!
#1. Start with Rs 5 Lakhs (the amount you have right now)
#2. Start investing an additional Rs 22,000 every month. By the end of the first year, you would have invested a total of Rs 2.6 Lakhs.
#3. Increase the amount you save by 15% every year, so the investment amount changes to Rs 25,300 per month from the second year. This investment figure keeps on going up annually for the rest of the duration.
The end result should be the same as starting with a higher capital amount of Rs 33 Lakhs. Assuming that fund returns are in the 12% range, you should be able to reach your Rs 1 Crore goal by the end of 10 years.
Here is a calculator where you can check how much you need to invest in 10 years to reach a particular corpus. You only need to add, in the relevant cells, your initial investment, your monthly investment figure, and by what percentage you intend to increase your monthly investment each year.