Mutual fund calculator: Can you make a corpus of ₹5 Cr in 5 years by investing ₹5 lakh?

For long-term investors, mutual funds are typically favoured; nevertheless, long-term SIPs are less risky than mid- and short-term investments. Before investing in a mutual fund SIP, individuals must carefully evaluate their risk tolerance and choose assets that fit their investment objectives, financial situation, and risk appetite. Long-term investments can serve as a hedge against inflation, and research has shown that mutual funds have given superior returns over the long term in addition to advantages like better purchasing power and lower volatility than short-term investments. Let's find out from our industry experts how investors may generate a corpus of ₹5 Cr in 5 years by investing ₹5 lakh, as an example. 

Naveen Kukreja, Co-Founder & CEO of Paisabazaar

Creating a corpus of ₹5 crore from a lump sum investment of ₹5 lakh in 5 years would be a near impossible task as that would require your investments to grow at a CAGR of 151%. Instead, I would suggest you invest in equity mutual funds through the SIP route to create this corpus. Assuming an annualised return of 12%, you would need to invest about ₹6.12 lakh per month in equity mutual funds through SIP. 

You can split your SIP contributions equally among the direct plans of large cap index funds and flexi cap funds. You can consider HDFC Index S&P BSE Sensex Fund or ICICI Prudential S&P BSE Sensex Fund, whichever has a lower expense ratio, for investing in index funds. Parag Parikh Flexi Cap Fund or PGIM India Flexi Cap Fund can be considered for investing in flexi cap funds.

Juzer Gabajiwala- Director, Ventura Securities

The journey from Rs. 5 Lacs to Rs. 5 Cr in 5 years could only be possible with pure equity stock, and that too if you are extremely lucky. What you are expecting here is 151% CAGR for the next 5 years; it’s like anticipating Nifty 50 to reach ₹17,62,000 from the current levels of 17,624. 

This is impossible in a mutual fund for a period of 5 years. Presuming you are talking about investing Rs. 5 Lacs a month for the next 5 years, then also you would have to earn @20% XIRR to accumulate Rs. 5 Cr. The long term average of Nifty is around 15% CAGR. So the expectations will definitely need to be tempered with.  

Atul Sharma, Founder, Lex N Tax

To create a corpus of ₹5 Crore in 5 years by investing ₹5 Lakh, you need to have an annualized return of around 54%. While this may seem like a very high return, it is not impossible to achieve through aggressive investments in equities, provided that you have a high-risk appetite and a good understanding of the market.

Here's a potential plan to achieve your goal:

1. Start by investing ₹5 Lakh in a diversified portfolio of equity mutual funds. Since you have a 5-year time horizon, you can afford to take some risks and invest in mid-cap and small-cap funds. Some mutual funds that you can consider are:

(a)  Mirae Asset Emerging Bluechip Fund

(b)  SBI Small Cap Fund

(c)  Axis Midcap Fund

2. Invest a lump sum of ₹1 Lakh every year for the next four years in the same mutual funds. This will increase the size of your investment and potentially enhance your returns.

3. Monitor your investments regularly and rebalance your portfolio as necessary. This will help you stay on track towards your goal and reduce your exposure to risk.

Nirav Karkera, Head of Research, Fisdom

To generate INR 5 Cr. within a span of five years with an initial investment of INR 5 Lakhs, the investment would need to grow at a CAGR of around 150% throughout the period. While non-conventional assets have delivered such exceptional performance in the past, most of it can be attributed to speculative participation. Therefore, those seeking to build sustainable wealth must invest in regulated assets and have rational performance expectations.

Assuming an optimistic 12% CAGR over a period of five years, an investment of ~INR 2.8 Cr. would be required to achieve the INR 5 Cr. target. At the same rate of return, an initial investment of INR 5 Lakhs could grow up to INR 8.8 Lakhs over the period. Assuming a 12% CAGR remains consistent, a monthly SIP of ~INR 6.5 Lakhs would be required to achieve a target of INR 5 Cr. in five years.

Investors must adjust their expectations or investments accordingly to achieve their financial goals. It is crucial to set realistic targets and invest in regulated assets that align with their financial goals and risk appetite. While investment performance is not completely in an investor’s control, the investor must seek to maximise factors in control. Such factors include investment discipline, time period and amount invested.

Pranit Arora, Co-Founder and CEO, Univest

If you're looking to earn a significant return on a 5 lakh investment per year, one potential strategy is to invest in equity mutual funds. While these funds come with higher risk than fixed deposits or bonds, they have historically delivered higher returns. To minimize risk, it's recommended to diversify your investments across multiple mutual funds, including diversified equity funds and small/mid-cap funds with a proven track record of good returns. You can consider some schemes of Axis Mutual fund and Quant Mutual fund. Investing through a Systematic Investment Plan (SIP) is another effective way to create wealth without excessive worry. SIP allows you to invest a fixed amount at regular intervals, such as monthly or quarterly, which helps average out market volatility and benefit from the power of compounding.

To further maximize returns, it's important to take advantage of market downturns or corrections by investing during these times. However, it's crucial to carefully evaluate the risks involved and seek advice from a financial advisor if necessary. Regularly reviewing and rebalancing your mutual fund portfolio is also essential to ensure it aligns with your financial goals, risk tolerance, and market conditions. Finally, it's important to stay invested for the long term and avoid making impulsive decisions based on short-term market movements.

CA Manish Mishra, Virtual CFO

Set a target corpus amount: In this case, the target corpus is ₹5 crore.

Determine the investment horizon: You have a 5-year investment horizon.

Consider inflation: Inflation can erode the value of your investment. Assuming an average inflation rate of 5%, the target corpus of ₹5 crore in 5 years would be worth approximately ₹6.4 crore in today's value.

Determine the required rate of return: To achieve a corpus of ₹6.4 crore in 5 years, you need to earn an average annual return of around 20%.

Diversify your portfolio: To manage risk and achieve the required rate of return, you can consider investing in a mix of equity-oriented mutual funds, debt funds, real estate, and commodities.

Allocate your portfolio: Based on your risk appetite, you can allocate your portfolio in the following manner:

Equity-oriented mutual funds: 60%

Debt funds: 20%

Real estate: 10%

Commodities: 10%

Choose the right investment instruments: While selecting the investment instruments, you need to consider the historical performance of the funds or assets, the expense ratio, and other factors. For example, while selecting equity-oriented mutual funds, you can choose funds with a track record of consistent performance, low expense ratio, and a well-diversified portfolio. Similarly, while investing in real estate, you can choose properties in prime locations with good growth potential.

Review and rebalance your portfolio regularly: You need to review your portfolio regularly and rebalance it to maintain the desired asset allocation.

Remember, these are just broad guidelines, and the actual portfolio allocation would depend on your specific financial goals, risk appetite, and investment horizon. It's always a good idea to seek the advice of a professional financial advisor before making any investment decisions.