Investment

A guide to building your first ₹1 crore with SIP

03 September 2024

Let's find out how a disciplined SIP strategy can help you reach your ₹1 crore goal while navigating market fluctuations with help of rupee cost averaging.

What is SIP?

A Systematic Investment Plan (SIP) is a strategy where you invest a fixed amount, usually monthly, into a mutual fund. A fund manager handles the investments based on market trends. This consistent approach helps you build wealth steadily over time.

How to reach ₹1 crore with SIP?

Let’s take the example of Rahul, a software engineer, who is set to reach ₹1 crore in the next 25 years.

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Rahul’s investment plan

Monthly Investment: ₹ 10,000
Time Horizon: 25 years
Expected Annual Return: 12% (based on historical data)

The growth of Rahul’s investment over time

Year	Amount Invested Annually (₹)	Value at 12% (₹)
1	1,20,000	1,28,093
5	6,00,000	8,16,697
10	12,00,000	23,23,391
15	18,00,000	50,45,760
20	24,00,000	99,91,479
25	30,00,000	1,89,76,351

Rahul’s commitment to investing ₹10,000 each month has truly paid off, demonstrating the powerful impact of consistent investments over time.

After 25 years, his total investment of ₹30,00,000 has grown to an impressive ₹1,89,76,351.

While this example of Rahul’s investment journey shows the power of consistency, understanding the market practically can help him plan his SIP journey the right way.

Handling market fluctuations with Rupee Cost Averaging

Rupee cost averaging, a key advantage of SIPs, is like putting your investments on autopilot by investing a fixed amount regularly.

This automated approach adapts to market fluctuations, buying more units when the NAV (Net Asset Value) is low and fewer units when it’s high, which helps average out your investment costs over time.

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Real fund example

UTI Nifty 50 Index Fund–Direct Growth

To see this in action, let’s analyse Rahul’s 10-year SIP journey with a real mutual fund

Rahul’s investment plan

Monthly Investment: ₹ 10,000
Investment Period: 10 Year
Fund: UTI Nifty 50 Index Fund - Direct Growth
Time Period: January 2014 - December 2023

Chart analysis: UTI Nifty 50 Index Fund (2014-2023)

Note: This illustration focuses on a 10 year period to provide a more practical and current example.

Chart Analysis

The chart shows a steady rise with some ups and downs, especially in 2016 and 2020. Despite these dips, consistent investing took advantage of lower NAVs, leading to significant growth after the recovery.

This shows the benefits of rupee cost averaging in smoothing out market fluctuations.

The table below highlights how rupee cost averaging helped Rahul reduce risk during market dips, ensuring he continued to accumulate wealth even in volatile markets

Year	Amount Invested Annually (₹)	Units Purchased	NAV at Year‑end (₹)	Portfolio value (₹)
2014	1,20,000	2663	53	1,39,120
2015	2,40,000	4953	49	2,39,002
2016	3,60,000	7278	53	3,84,770
2017	3,84,770	9245	69	6,35,964
2018	6,00,000	10,967	81	7,73,728
2019	7,20,000	12,562	91	10,16,859
2020	8,40,000	14,225	93	13,27,914
2021	9,60,000	15,354	123	18,84,432
2022	10,80,000	16,312	133	21,75,275
2023	12,00,000	17,165	148	25,35,889

Disclaimer: Values are for illustration only. UTI Nifty 50 Index Fund is used as an example, not a recommendation.

Factors of RCA on Rahul’s portfolio

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Consistent investments despite market changes

Rahul committed to investing ₹10,000 every month through his SIP, regardless of market conditions.

For example, in 2015, when the NAV was lower at 49, his SIP bought 4,954 units—2,290 more units than the previous year. However, in 2021, when the NAV was higher, his SIP bought fewer units (15,354), adding only 1,110 units compared to the previous year.

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Maximising units when NAV is low

In 2020, despite the market downturn due to the pandemic, Rahul’s SIP purchased the highest number of units (14,225) because the NAV dropped to 93.

This illustrates how SIPs capitalise on market dips, as the fund manager’s strategy of buying more units at lower prices effectively reduces the average cost per unit.

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Portfolio growth over time

Despite market fluctuations, Rahul’s consistent investments led to significant portfolio growth. His portfolio, which was valued at ₹1,39,120 in 2014, grew to ₹25,35,889 by 2023.

This highlights how rupee cost averaging through regular investments can help build wealth over time by smoothing out market volatility.

Conclusion

A disciplined SIP strategy with rupee cost averaging is a great way to build wealth steadily. By investing a fixed amount regularly, regardless of market conditions, you can see steady growth.

Rahul’s investment in the UTI Nifty 50 Index Fund and similar examples show how sticking with a SIP leads to impressive results, proving that consistent investing is a smart way to reach your financial goals.

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