Strategies for Latecomers in Accumulating a Portfolio Worth Rs 100 Million
Investing in mutual funds can be an effective way to build a substantial corpus, especially for those who start later in life. Two strategies that can help late starters achieve this goal are Step-up SIPs and lump sum investments.
Step-up SIPs involve gradually increasing your monthly investment amount, typically by about 10% annually, which aligns with income growth. This tactic significantly boosts the corpus through compounding, even if you start investing later in life. By increasing the SIP amount, investors can build wealth faster than a fixed SIP amount would allow, helping to catch up on the years missed.
Lump sum investments introduced alongside SIPs act as a "nitro booster," giving the corpus an immediate large capital injection that can benefit from rapid market growth, especially if invested in high-growth funds like small-cap mutual funds. This approach can considerably lift the overall corpus compared to relying solely on steady monthly contributions.
For example, a 30-year-old with savings of Rs. 2.5 lakh can reduce his monthly SIPs by investing a lump sum in a mutual fund. With a 10% annual increase, this individual's monthly SIPs would be approximately Rs. 14,500, and he could still accumulate Rs. 10 crore by age 60. Without a lump sum investment, the monthly SIP amount would be significantly higher, around Rs. 36,000 for a 32-year-old and Rs. 53,000 for a 35-year-old, to reach the same corpus.
A 35-year-old can build a Rs. 10 crore corpus by investing Rs. 35,000 monthly and increasing investments by 10% every year. However, with a lump sum investment of Rs. 2.5 lakh, the monthly SIP amount would be reduced by an even greater percentage.
The table below shows the monthly investments required for various ages to accumulate a Rs 10 crore corpus with step-up SIPs increasing by 5%, 10%, and 15% annually. However, it does not include the impact of lump sum investments.
Starting a SIP at any age and increasing it periodically fits well with stable income growth patterns, encouraging financial discipline while taking advantage of compounding. Investing lump sums when available ensures excess funds are put to work productively instead of sitting idle.
In summary, for late starters, step-up SIPs increase investment amounts in line with rising income, enhancing compounding effects, while lump sum investments provide powerful growth boosts, together helping to build a large mutual fund corpus despite a delayed start. These strategies can reduce the number of years required to accumulate a target amount and lower the required SIPs for late starters.
Equity funds, such as small-cap mutual funds, can benefit significantly from lump sum investments, offering a rapid market growth opportunity for those investing later in life. By strategically incorporating both step-up SIPs, which boost the corpus through compounding as income grows, and lump sum investments, late starters can achieve their personal-finance goals of building a substantial corpus more effectively.
