My husband and I earn money ₹20 lakh per year and invest ₹40,000 per month through a systematic investment plan (SIP) that I started 2 months ago. Currently I have ₹3 lakh in direct shares and some gold investment. We want to collect an advance payment of ₹1 crore over six years to buy a house. By how much should we escalate our monthly investment each year and what funds should we invest to achieve this goal.
— Name withheld upon request
Your plan of increasing your SIP rates every year to build a deposit corpus is good as you would be able to reach approximately ₹44-48 lakh with the current monthly investment of ₹per month for the next 6 years if we assume an annual rate of return of 10-12%. To cover the difference amount, a step-up strategy will be quite effective. Assuming the same rate of return, you need to escalate your SIP by 35-40% every year. In the fifth year, you will have to invest almost 3-4 times more than you currently do. If this escalate is quite high, which for most investors is usually between 10% and 25%, then you will need to either escalate your monthly investment from there or move your goal forward. We would like you to achieve your goal according to your plan.
Although we don’t have details of your cash flow in terms of expenses and monthly potential savings given your income ₹20 lakh you can try to invest more once your current annual investment reaches the level ₹4.8 thousand If you try to escalate your SIP to ₹60,000 per month, just escalate it by 20% every year.
Coming back to funds, you need to invest more in immense and mid-cap funds as the time horizon is 6 years. Below are some suggestions for you to evaluate. UTI Nifty Index Fund, Nippon India Vast Cap Fund, Parag Parikh Flexi Cap Fund, HDFC Flexicap Fund and SBI Vast & Mid Cap Fund.
Although the growth potential of mid- and small-cap funds is greater in the long term, it must be remembered that our investment horizon is 6 years. Therefore, it would be a good idea to invest in a combination of large-cap funds and flexible-cap funds.
Harshad Chetanwala is the co-founder of MyWealthGrowth.com
Posted: May 1, 2024 5:20 PM EST
