Navigating the turbulent seas of direct equity investing requires a seasoned sailor. You’re looking at an annual return rate of 18.8%, which is ambitious, though not impossible, in the realm of small-cap mutual funds.
First, let’s talk numbers:
To achieve a corpus of ₹1 crore from a monthly SIP of ₹10,000 in 15 years, you’re right in needing an average annual return of 18.8%. Here’s how the math works out:
FV = P * [(1 + r)^nt – 1] / r
Where: FV = Future Value (the amount you want after 15 years, i.e., ₹1 crore) P = Monthly investment (₹10,000) r = Monthly return rate (18.8% p.a. / 12 months = 1.57% per month) t = Time period in years (15 years)
However, the volatility of the equities and various market factors make it challenging to maintain such a high return consistently. Some good small cap funds or stock portfolios can offer high returns over long periods but can also experience sharp downturns.
Here are a few reasons why achieving this target needs patience, expertise, and skill:
- Market Volatility: Small-cap funds are significantly affected by market fluctuations. An investor must remain patient during market downturns and not panic-sell.
- Investment Knowledge: Understanding the businesses you’re investing in is crucial. This requires substantial research and a keen understanding of market trends.
- Emotion Management: One of the biggest challenges is to keep emotions in check. Investors must resist the urge to react hastily to short-term market movements.
- Portfolio Rebalancing: Over time, as some investments outperform others, the asset allocation changes. Periodic rebalancing ensures the portfolio aligns with the intended risk level.
When it comes to selecting a small-cap fund, it’s crucial to look at the fund’s performance history, the fund manager’s track record, and the underlying portfolio of stocks. Some well-performing small-cap funds in recent years include the DSP Small Cap Fund and the HDFC Small Cap Fund. But past performance is not an indicator of future returns. A mix of stocks and mutual funds will help diversify your portfolio.
If this seems daunting, remember that you’re not alone. Consider seeking the help of a SEBI registered investment advisor. At Jama Wealth, we abide by the philosophy of “Roots and Wings” – the grounding of high-quality stocks (roots) and the growth potential they offer (wings).
Remember, the journey to ₹1 crore is a marathon, not a sprint. Patience, consistency, and discipline can be your best allies on this journey. To sum up, the goal is ambitious but possible with the right strategy, patience, and expert guidance.
