Is it possible to make Rs. 1 crore through mutual funds?

Becoming a ‘crorepati’ – someone whose net worth is Rs. 1 crore or more – is a dream for many Indians. Investing can make such wealth-creation possible in the long term. However, such a goal requires discipline, patience, a well-planned approach and an ability to deal with market risks. Mutual funds, with their diversity of investment avenues and potential for long-term growth, can be a suitable way to potentially work towards such a financial goal.

• Table of contents

• Why mutual funds?
• Understanding the potential of SIPs
• Building a Rs. 1 crore corpus across various timeframes
• Key actions to reach Rs. 1 crore through mutual funds

Why mutual funds?

• Professional management: Fund managers handle stock or bond selection, saving you from the complexities of daily market monitoring.
• Diversification: Spreading your investment across multiple companies and sectors reduces the overall risk in your portfolio.
• Systematic approach: Through monthly Systematic Investment Plans (SIPs), you can steadily invest over time in instalments.

Understanding the potential of SIPs

Before calculating how much to invest to earn Rs. 1 crore, it’s crucial to understand the concept of lumpsum and SIP. A lumpsum is a one-time investment –typically a large sum -- in a mutual fund. An SIP allows you to invest a fixed amount at your chosen frequency (daily, weekly, monthly etc.) in a mutual fund of your choice. Here are some of its benefits:

• Rupee cost averaging: SIPs average out the cost of purchase over time, helping you buy more units when prices are low and fewer units when prices are high. This method averages out the total cost of investment irrespective of volatile markets.
• Flexibility and discipline: You can start an SIP with as little as Rs. 500 or Rs. 1,000, making it accessible to novices. Over time, you can raise the contribution as your income grows, ensuring you remain disciplined in your savings. However, for a goal of Rs. 1 crore, a larger SIP amount may generally be required.
• Compounding effect: Compounding occurs when your returns are reinvested, generating additional earnings over the years. The longer you stay invested, the more powerful compounding becomes—an essential ingredient to potentially building wealth over time.

Building a Rs. 1 crore corpus across various timeframes

Different investors have different horizons. Here are some example scenarios

Scenario 1: 1-year investment window

Reaching a Rs. 1 crore in a year is close to impossible. If you’re wondering how to earn 1 crore rupees in just 12 months, your primary option might be an enormous lumpsum.

However, relying on short-term mutual fund returns is risky because:

• High market volatility: Equity funds can swing significantly within a year, and there’s no guarantee of double-digit growth in such a short span.
• Limitation of debt funds: While more stable than equities, they typically offer lower returns that are unlikely to result in such significant gains.
• Practical feasibility: Reaching Rs. 1 crore within a year usually requires a large principal (one that is already close to Rs. 1 crore) and a speculative high-return environment—which is more akin to gambling than structured investing.

Conclusion for 1-year: Achieving Rs. 1 crore in a single year via mutual funds is not a feasible goal. Consider extending your timeframe for more realistic goals.

Scenario 2: 3–5 Years for a Rs. 1 crore goal

While more feasible than 1 year, this will also be a challenging task because market conditions can be unpredictable within such a cycle. A three-year window is still considered short-to-medium term and a prolonged bear market or recession during this period may throw your investments off course. Moreover, this time window does not give enough room for the potential power of compounding on your investments to gain sufficient momentum.

A five-year target may be more feasible, but only if you have the capacity to invest a sizeable amount and market conditions are favourable.

Here’s a rough example for 5 years.

• Assume annual rate of return: You can assume a 12% rate for equity mutual funds. However, actual returns will depend on market conditions and could be lower or higher.
• Use an SIP calculator*: According to a standard SIP calculator, if you require Rs. 1 crore in 5 years with around 12% annualised returns, you might need to invest approximately Rs.1.25 lakh monthly.
• Lumpsum approach: Alternatively, a significant lump sum investment (approx. Rs. 57 lakh) could also grow to Rs. 1 crore in 5 years, but it demands that you have that large corpus ready at the start.

*Note: These estimates are based on SIP/lumpsum calculators. The calculator’s estimates are based on your inputs and actual returns will depend upon market conditions.

Key tips

• Assess risk: A 5-year horizon still experiences market fluctuations. Understand that short-term corrections can impact your net worth, even if the trajectory is generally upward.
• Stay in growth-oriented funds: Relatively stable large cap funds or equity-oriented hybrid funds may be more suitable than funds investing in mid caps or small caps in this tenure.

Scenario 3: 7-10 years or more

Extending your investment horizon beyond 5 years generally reduces the monthly investment needed. A Rs. 1 crore goal can be more feasible in this period. However, returns, as always, will depend upon market conditions. Here are some reasons why a longer horizon may be more suitable:

• Power of compounding: The longer you invest, the more your gains can generate additional returns, amplifying growth potential.
• Manageable investment amount: You can invest a monthly sum. For instance, if you stretch your goal to 10 years, you may need approximately Rs. 45,000 SIP per month, assuming 12% returns. If you have an even longer horizon, of say, 15 years, (such as for retirement planning or setting aside money for your children’s future), this amount can come down further. Using an SIP calculator and assuming a tenure of 15 years and returns of 12%, your required monthly contribution may be Rs. 20,000.
• Lower volatility stress: Short-term market dips become less concerning, and you can potentially ride out economic cycles.

*Note: These estimates are based on SIP calculators. The calculator’s estimates are based on your inputs and actual returns will depend upon market conditions.

Target funds

• Equity funds: Over 7–10 years, equities often outperform other asset classes.
• Equity-oriented hybrid funds: If you want to mitigate risk, balanced or multi-asset funds can all relative stability to your portfolio while still delivering potential for wealth-building over time.

Key actions to reach Rs. 1 crore through mutual funds

• Define your goal clearly: Understanding exactly how to make 1 crore or set aside Rs. 1 crore for specific goals—such as buying a house or funding your child’s education—will help you choose appropriate mutual funds (equity, hybrid, or debt).
• Pick the right funds
  • Equity funds: Offer better return potential over the long run but come with higher volatility.
  • Hybrid funds: Combine equity and debt. Hybrid funds with a larger equity share offer long-term growth potential with reduced risk compared to pure equity.
  • Debt funds: Are usually relatively stable but may not provide the returns required to accumulate Rs. 1 crore, unless you invest a large amount or have a very long horizon.
• Use SIP and lumpsum calculators: Online calculators can help you gauge the investment needed to hit Rs. 1 crore under assumed annual returns (e.g., 12–13% for equity funds).
• Regular review and rebalance: Market conditions fluctuate. Revisiting your fund choices at least once a year can help you assess if your investments remain aligned with your 1-crore target and risk profile.
• Stay committed: Most importantly, discipline is key. Avoid the temptation to withdraw at market lows or chase quick gains. Remaining invested fosters long-term growth.

Conclusion

Determining how to save 1 crore rupees boils down to long horizons, disciplined investing, realistic expectations, and strategic mutual fund choices. Horizons of less than five years are not recommended. Moreover, the longer the horizon, the more the potential growth. While ‘how to make 1 crore’ can be a motivating quest, it’s essential to recognise that consistent, patient investing usually trumps hasty decisions.

Stay invested, periodically reassess your strategy, and consult a financial advisor if possible.

FAQs:

How can I calculate the amount to invest in mutual funds to reach Rs. 1 crore?

You can use an online SIP or lump-sum calculator. Enter your desired final corpus (Rs. 1 crore), expected annual return (e.g., 12%), and time horizon. The calculator will approximate the required monthly or one-time investment.

What factors affect the amount needed to invest in mutual funds for Rs. 1 crore?

Key factors include the investment horizon, current income, expenses, risk tolerance, and whether you choose a lumpsum or SIP. However, actual returns depend on market conditions.

How does the rate of return impact the investment amount required to achieve Rs. 1 crore?

A higher assumed return reduces the monthly amount you need to invest, but also involves higher risk, especially in the short term. Conversely, a conservative return assumption raises your required investment amount.

Is it better to invest a lump sum or start an SIP to accumulate Rs. 1 crore?

It depends on your financial situation. If you already have significant capital and the market conditions seem favourable, a lumpsum could work. However, timing and predicting the market is challenging. If you want to spread out your investments over time and want to mitigate market timing risks, SIPs can be more suitable.

How long does it take to earn Rs. 1 crore through mutual funds?

The timeline varies based on your monthly investment and the fund’s returns (which in turn depend on market conditions). Typically, having a long horizon of 7-10 years or more may be more suitable than a shorter tenure.

Mutual Fund investments are subject to market risks, read all scheme related documents carefully. This document should not be treated as endorsement of the views/opinions or as investment advice. This document should not be construed as a research report or a recommendation to buy or sell any security. This document is for information purpose only and should not be construed as a promise on minimum returns or safeguard of capital. This document alone is not sufficient and should not be used for the development or implementation of an investment strategy. The recipient should note and understand that the information provided above may not contain all the material aspects relevant for making an investment decision. Investors are advised to consult their own investment advisor before making any investment decision in light of their risk appetite, investment goals and horizon. This information is subject to change without any prior notice.