My husband and I earn ₹20 lakh every year and invest ₹40,000 every month through a systematic investment plan (SIP), which I started two months ago. At present, I have ₹3 lakh in direct stocks and some amount invested in gold. We want to accumulate a down payment of ₹1 crore after six years for our home. Will this investment work? We are also planning to step up the monthly investment every year but are unsure how much we need to. Please guide us on the step-up amount and funds in which we can invest.
–Name withheld on request
Your plan to step up the SIP every year to build a downpayment corpus is good, as you would have been able to reach around ₹44-48 lakh with the present monthly investment of ₹40,000 per month for the next six years if we assume an annual return of 10-12%.
A step-up strategy will be quite effective in covering the difference. Assuming the same rate of returns, you need to increase your SIP by 35-40% every year. In the fifth year, you will need to invest almost 3-4 times what you are doing right now. If this step-up is quite high, which usually is between 10% and 25%, then you will either have to increase your monthly investment from here onwards or push the goal ahead.
We would like you to achieve your goal as per your plan. While we do not have the details of your cash flow in terms of expenses and monthly savings potential, considering your income of ₹20 lakh, you can try to invest more as the present annual investment comes to ₹4,80,000 every year. If you try to increase your SIP to ₹60,000 every month, you will just have to increase it annually by 20%.
Coming to the funds, you need to be more large- and mid-cap-oriented, as the time horizon is six years. Following are a few suggestions you can evaluate.
-Nippon India Large Cap Fund
-Parag Parikh Flexi Cap Fund
-SBI Large & Mid Cap Fund
While the growth potential of mid- and small-cap funds is higher in the long term, we must keep in mind that our investment horizon is six years. Hence, it could be good to invest in a blend of large and flexicap funds.
Harshad Chetanwala is a certified financial planner and co-founder at mywealthgrowth.com.