Smart Ways To Invest 10 Crore In India

Investing 10 crore in India is a complex process that requires careful planning and discipline. To achieve this financial goal, one must consider various options such as lump-sum investments, Systematic Investment Plans (SIPs), or a combination of both. The choice of investment vehicles includes equity-linked mutual funds, which can provide returns of 10-15% in the long term, and ELSS funds, which offer tax benefits under Section 80C. Additionally, it is crucial to increase the SIP amount periodically as income grows and to monitor the performance of the investment portfolio regularly. A well-diversified portfolio for aggressive investors, such as 40-year-old Karthik, would include an aggressive allocation to equities, aiming for a return of 12% or higher. However, as the corpus approaches the 10 crore goal, it is prudent to shift a large portion of the funds from equities to fixed-income instruments.

Lump-sum investment: Invest in mutual funds with high historical returns

Lump-sum investment is one of the options to build a corpus of Rs 10 crore in 20 years. This option requires you to find out three things: the initial investment or starting capital, the annual returns, and the duration.

For example, if you have Rs 10 lakh of investible surplus, then an annual return of 26% for the next 20 years will take you to 10 crores. Similarly, if you have Rs 25 lakh as your starting investment, you will require a 20.3% annual return over the next 20 years to reach Rs 10 crores.

However, the challenge lies in the possibility of getting such high annual returns consistently over the next two decades. While it is rare, it is not unprecedented. In the past 20 years, 19 Indian mutual fund schemes have delivered an average annual return of 20% or more. These include:

• Nippon India Growth Fund
• Franklin India Prima Fund
• SBI Magnum Global Fund
• ICICI Prudential Long Term Equity Fund
• Nippon India Vision Fund
• DSP Equity Opportunities Fund
• Aditya Birla Sun Life Flexi Cap Fund
• Franklin India Flexi Cap Fund
• SBI Long Term Equity Fund
• ICICI Prudential Technology Fund
• SBI Large & Midcap Fund
• HDFC Capital Builder Value Fund
• TATA Midcap Growth Fund
• Aditya Birla Sun Life MNC Fund
• Canara Robeco Infrastructure Direct-Growth
• Canara Robeco Flexi Cap Fund Direct-Growth

If you don't have a large starting capital, you can consolidate various investments like FDs and PPFs, which offer 5-7% returns. You can then invest this amount in good Equity Funds that can deliver double-digit returns in the long run.

Additionally, you can use your annual bonus to boost your starting capital. Every bit counts towards achieving your financial goals.

While a lumpsum investment can be a viable option, it is important to note that building a wealth corpus of Rs 10 crore requires discipline and a sound financial plan. You may also consider other options such as SIP investments, increasing your SIP amount periodically, or a combination of lumpsum and SIP approaches.

Systematic Investment Plan (SIP): Invest a fixed amount at regular intervals

Systematic Investment Plans (SIPs) are a great way to enter the world of long-term investments. The key to SIPs is to start early and stay invested. This approach encourages disciplined investing, as a fixed amount is invested at regular intervals.

Here's how it works:

SIPs operate on the principle of Rupee Cost Averaging. This means that when the market is low, you buy more units, and when the market is up, you buy fewer units while investing the same amount of money every time. So, you average out the cost of acquisition and benefit from the market's ups and downs without the stress of timing.

For example, let's say you invest ₹1,000 a month in a mutual fund via SIP for 5 months. The market price of the mutual fund units fluctuates over these 5 months:

• Month 1: ₹20 per unit
• Month 2: ₹25 per unit
• Month 3: ₹50 per unit
• Month 4: ₹40 per unit
• Month 5: ₹20 per unit

In this case, you would have bought:

• Month 1: 50 units
• Month 2: 40 units
• Month 3: 20 units
• Month 4: 25 units
• Month 5: 50 units

So, in total, you invested ₹5,000 and bought 155 units, giving you an average cost per unit of around ₹32.26.

SIPs offer a range of benefits:

• Disciplined Approach: SIPs promote regular and disciplined investing, helping you build the habit of investing through fixed amounts.
• Compounding Benefits: Compounding returns are maximised when investments are made over long periods, and SIPs allow you to reinvest generated returns.
• Rupee Cost Averaging: This strategy helps to spread the effect of market movements on your investments, buying more units when prices are low and fewer when prices are high.
• Convenience: SIPs can be automated through a bank mandate, deducting a fixed amount from your account and investing it in your chosen mutual fund scheme.
• Lower Investment Capital: With SIPs, you can start investing with a small amount, making it accessible to young or less capitalised investors.
• Flexibility: SIPs offer flexibility in terms of the amount and frequency of investment, which can be adjusted according to your financial situation.
• Diversification: Investing through SIPs in mutual fund schemes offers diversification across different asset classes, sectors, and geographies.
• Professional Management: Mutual fund schemes are managed by experts who analyse and select the best investment opportunities to help you achieve your financial goals.
• Passively Managed Funds: These funds aim to replicate the performance of a specific market index, and investors can also use the SIP method to invest in these.

There are several types of SIPs to choose from:

• Regular SIP: Invest a fixed amount at regular intervals.
• Flexible SIP: Change the investment amount or skip investments as needed.
• Perpetual SIP: Regular SIPs have an end date, but perpetual SIPs continue until you decide to stop them.
• Trigger SIP: Set certain triggers for investments, such as a particular date, NAV level, or index level.
• Multi SIP: Invest in multiple mutual fund schemes using a single SIP.
• Step-up SIP: Similar to a top-up SIP, but the increase in investment amount is predefined and occurs at regular intervals.

SIPs are a great way to get started with investing, offering benefits like flexibility, affordability, and a disciplined approach. However, it's important to remember that mutual fund investments are subject to market risks, and you should always read the scheme-related documents carefully before investing.

Step up your SIPs: Increase the monthly SIP amount as your income grows

Step-up SIPs, also known as top-up SIPs, are a great way to boost your investments as your income grows. Here's a detailed guide to help you understand and use Step-up SIPs effectively:

Understanding Step-up SIPs

Step-up SIPs are a variation of Systematic Investment Plans (SIPs), which allow you to invest in mutual funds regularly. With a Step-up SIP, you can increase your SIP contributions over time as your income grows. This is similar to how you would increase your pace and distance gradually when training for a marathon to build stamina. It's a way to translate your growing income into higher investments.

Benefits of Step-up SIPs

There are several advantages to using Step-up SIPs:

• Realistic Planning: Step-up SIPs help you create a financial plan that considers your potential income growth. This allows you to set achievable goals and make informed investment decisions.
• Higher Potential Returns: By gradually increasing your investment amount, you can take advantage of compounding interest over a longer period, resulting in higher overall returns compared to a fixed SIP.
• Disciplined Investing: Step-up SIPs encourage disciplined investing by setting a plan for increasing your investment over time, helping you stay on track towards your financial goals.
• Flexibility: While most Step-up SIPs assume annual increases, some allow you to customize the frequency (e.g., bi-annually) and percentage of the increase to match your income growth projections.
• Peace of Mind: Knowing your potential future corpus through a Step-up SIP calculator can provide peace of mind, helping you visualize your investment growth and plan for major financial goals.

How to Set Up a Step-up SIP

Setting up a Step-up SIP is similar to a regular SIP. Here are the steps:

• Select a Scheme: Choose a mutual fund scheme that suits your risk profile and financial goals. For example, aggressive investors might opt for a small and mid-cap equity fund, while conservative investors might prefer a balanced fund.
• Choose the Step-up SIP Option: When filling out the online form, select the Step-up SIP option. Provide the initial amount, step-up amount, step-up frequency, and final amount in the respective columns. Most fund houses allow you to increase the investment amount every six months or annually.
• Specify a Maximum Destination Amount: You can put a cap on the maximum amount you wish to invest per month. This way, your SIP investment will keep increasing until it reaches the ceiling amount, after which it will continue as a regular SIP with the same monthly investment.

Differences Between Step-up SIPs and Conventional SIPs

Traditional SIP investing does not offer the option to increase contributions during the investment tenure. If investors want to invest more, they must open a new SIP. Step-up SIPs, on the other hand, allow investors to increase their contributions in their already ongoing SIPs, making it a highly resourceful option.

Example Calculation

Let's illustrate with an example:

• Initial Investment: ₹5,000 per month
• Investment Tenure: 10 years (120 months)
• Step-Up Percentage: 10% annually
• Expected Rate of Return: 12% annually

With a regular SIP calculator and a fixed monthly investment of ₹5,000 at a 12% annual return for 10 years, the total future value would be approximately ₹1,437,747.

However, using a step-up SIP calculator with a 10% annual increase in your investment amount, the future value would be significantly higher. In this example, the calculator would show a future value of approximately ₹2,378,342.

Step-up SIPs are a powerful tool to help you achieve your financial goals. By increasing your SIP contributions as your income grows, you can take advantage of compounding interest and boost your investment returns. Start by selecting the right mutual fund scheme, configuring your Step-up SIP settings, and setting a ceiling amount for your investments. Remember that disciplined investing and realistic financial planning are key to your success.

Combination of SIP and lump-sum: Start with a lump sum and continue with SIP investments

When deciding how to invest 10 crore in India, one of the options is to use a combination of Systematic Investment Plans (SIPs) and lump-sum investments. This strategy involves starting with a lump-sum investment and then continuing to invest through SIPs. Here's a detailed guide on this approach:

Understanding SIP and Lump-Sum Investments

Before delving into the combination strategy, let's understand the basics of SIP and lump-sum investments:

Systematic Investment Plan (SIP): SIP allows you to invest a fixed or small amount of money at regular intervals, such as daily, weekly, monthly, or quarterly. The minimum investment for an SIP is typically ₹500, though some mutual fund houses offer SIPs starting at ₹100. With SIPs, you become the owner of the mutual fund units on your chosen investment dates.

Lump-Sum Investment: A lump-sum investment is a one-time payment made in full at the beginning of the investment period. The minimum amount for a lump-sum investment is usually ₹100, and you immediately become the owner of the mutual fund units.

Benefits of Combining SIP and Lump-Sum

Now, let's explore the advantages of combining SIP and lump-sum investments:

• Flexibility: This combination strategy offers flexibility by allowing you to start with a lump-sum investment when you have a significant amount available and then continue with SIPs for more disciplined and regular investments.
• Market Timing: With this approach, you can take advantage of market timing. Starting with a lump-sum investment allows you to capitalise on immediate growth potential or favourable market conditions. At the same time, continuing with SIPs helps negate market volatility and allows you to benefit from both rising and falling markets over the long term.
• Rupee Cost Averaging: Combining SIP and lump-sum investments enables you to benefit from rupee cost averaging. When the market is down, you purchase more units, and when the market rises, you buy fewer units, thus reducing the overall per-unit cost over time.
• Long-Term Investment Goals: This combination strategy is particularly suitable for long-term investment goals. The lump-sum investment provides an initial boost to your portfolio, while the subsequent SIPs help you build wealth consistently over time.
• Risk Mitigation: By starting with a lump-sum investment and then transitioning to SIPs, you can mitigate the risk of investing a large amount at an unfavourable time. SIPs help spread out your investments, reducing the impact of market volatility.

Things to Consider

When considering this combination strategy, here are a few things to keep in mind:

• Investment Goals: Ensure that your investment choice aligns with your financial goals, whether it's wealth creation, retirement planning, or any other specific objective.
• Risk Tolerance: Assess your risk tolerance and choose mutual funds with risk levels that match your comfort.
• Market Conditions: Monitor market conditions and seek to take advantage of favourable opportunities. For example, if you identify a market downturn or undervalued assets, consider investing a lump sum to capitalise on potential price appreciation.
• Diversification: Diversify your investments across different asset classes and fund types to reduce overall risk and stabilise returns.
• Expense Ratio and Fund Performance: Opt for funds with competitive expense ratios and strong historical performance, although past performance does not guarantee future results.
• Fund Manager: Research the track record and experience of the fund manager, as their expertise can significantly impact the fund's performance.

Example of Combination Strategy

Here's an example to illustrate the combination of SIP and lump-sum investments:

Let's say you have ₹10 lakh in your bank account that you want to invest. Instead of investing the entire amount as a lump sum, you can choose to invest a portion of it as a lump sum, let's say ₹5 lakh, in a liquid fund. Then, you can start a Systematic Transfer Plan (STP) from the debt fund to equity funds. This way, your corpus will earn higher returns than a savings account while also allowing for systematic investment. At the same time, you can initiate an SIP with the remaining ₹5 lakh, investing a comfortable amount, such as ₹10,000, ₹20,000, or ₹50,000, on a monthly basis.

In conclusion, the combination of SIP and lump-sum investments offers a balanced approach that leverages the advantages of both strategies. It provides flexibility, market timing opportunities, rupee cost averaging benefits, and the potential for long-term wealth accumulation. However, it's important to carefully assess your financial situation, goals, and risk tolerance before deciding on any investment strategy.

Choose the right funds: Opt for equity-linked mutual funds with higher returns

When investing a large sum of money, such as 10 crore, it is important to choose the right funds to maximise your returns. Equity-linked mutual funds are a great option for investors who are looking for higher returns and are willing to take on more risk. Here are some things to keep in mind when choosing equity-linked mutual funds in India:

• Diversification: Equity funds provide a diversified portfolio by investing in the stocks of different companies across various sectors or market capitalisations. This diversification helps to reduce the overall risk of the investment. Most funds have 40-50 stocks in their portfolio, but some funds may invest in a maximum of 30 stocks, which is known as a focused equity fund.
• Risk and Returns: Equity-linked mutual funds are considered high-risk investments due to their association with market fluctuations. However, they also offer the potential for higher returns compared to other types of funds, such as term deposits or debt-based funds. These funds are suitable for investors with a high-risk appetite and those who are looking for long-term investments, typically for a period of 3 to 7 years.
• Tax Benefits: Equity-linked mutual funds offer tax benefits under Section 80C of the Income Tax Act. For example, the Equity-Linked Savings Scheme (ELSS) offers tax deductions of up to Rs. 1.5 lakh. However, it is important to note that dividends and capital gains from equity funds are subject to taxation.
• Investment Style: Equity funds can be actively or passively managed. Actively managed funds have fund managers who handpick the stocks they want to invest in, while passively managed funds track a market index or segment to determine their investments.
• Investment Horizon: Equity funds are suitable for investors with a long-term investment horizon. These funds can be volatile in the short term, but they have the potential to generate higher returns over time. Therefore, investors should be prepared to stay invested for at least 5 years to reap the benefits of equity-linked mutual funds.
• Market Capitalisation: Different equity funds focus on investing in companies with specific market capitalisations. Large-cap funds invest primarily in the top 100 companies, while mid-cap and small-cap funds focus on smaller companies with higher growth potential but also higher risk. Multi-cap funds invest in a combination of large-cap, mid-cap, and small-cap companies to balance risk and returns.
• Sector and Theme: Some equity funds follow a specific investment theme or sector, such as international stocks, emerging markets, BFSI, IT, or pharmaceuticals. These sector or theme-based funds carry higher risk due to their focus on a specific area.

When choosing the right equity-linked mutual funds, investors should consider their financial goals, risk tolerance, and investment horizon. It is important to assess the different types of equity funds available and select the ones that align with your investment strategy and risk appetite.

Frequently asked questions