This post shows a way to estimate the final corpus for a SIP
I have started a 15k SIP. How much money will I have in 15 years?
Posted on 02 Sep 2021
Author: Sayan Sircar
7 mins read
Get new post notifications on WhatsApp!
This post shows a way to estimate the final corpus for a SIP
📚 Topics covered:
- A better way
- The “best” way
- Summary of the three approaches
- Using a SIP calculator that does this
- Caveat on these calculations
- A note on the effects of inflation
- Why you need to invest as per your goals
- Further reading
A common question amongst investors is what corpus value they will reach if they start investing in mutual funds via SIP form.
Before that, read this article to know more about SIP and the related terms STP and SWP: SIP, SWP and STP - what do they mean, which one should you choose and when?.
Given that we cannot predict the stock market, we need to make multiple assumptions regarding future returns and the ability of the investor to increase the SIP amount if the market does not move as per these assumptions. The final corpus will depend on the actual path followed by the stock market from now till the end.
We need to avoid uncertainty in predicting the final corpus figure. For example, if investing is for retirement, we need to know whether we will accumulate one crore as the corpus or ten crores. The quality of life in these two extreme cases will be very different.
Here is an example of a 15,000/month SIP run for 15 years. The SIP amount is increased by 5% every year. The chart shows ten different possibilities assuming the average equity return is 11% post-tax and risk of 15%. The results are:
- maximum value: ₹ 166 lakhs
- minimum value: ₹ 44 lakhs
We have deliberately omitted the y-axis from the chart since this level of variability is not effective in answering the question: how much we will get after 15 years?
Can we do better?Join the Arthgyaan WhatsApp community: You can stay updated on our latest content and learn about our webinars. Our community is fully private so that no one, other than the admin, can see your name or number. Also, we will not spam you.
A better way
The variation in the previous case is the effect of market risk that shows us that the returns of the equity market are unpredictable. Since we need market risk to make high returns, we need a way to manage this risk. Rebalancing via a suitable asset allocation is the solution here which will be via allocating to equity and debt. For this example, we will invest 60% in equity and 40% in debt and keep this allocation fixed for 15 years by rebalancing annually. We will use the same sequence of equity returns as before.
As these results show (corpus range of ₹49-108 lakhs), the variability is now lower but still unpredictable.
The “best” way
Here we extend the concept of asset allocation and introduce the idea of the glide-path that will allow us to manage market risk. We start at 60% equity (the rest will be in debt) and gradually reduce that yearly until it drops to zero when you fully invest the corpus in debt.
We see that the range is finally predictable, as the results show with the corpus range of ₹60-66 lakhs. This example also shows the effect of diversifying the asset allocation and managing risk via rebalancing.
Summary of the three approaches
|Case||Max corpus||Min corpus||Average||Variation|
|100% equity, no rebalancing||₹ 166||₹ 44||₹ 84||₹ 35|
|60:40 fixed asset allocation, rebalanced||₹ 108||₹ 49||₹ 72||₹ 17|
|Reducing equity asset allocation, rebalanced||₹ 66||₹ 60||₹ 63||₹ 2|
In this article, we have covered how to estimate the returns for your SIP: How much returns should you estimate for your goals?
Using a SIP calculator that does this
We have designed a SIP calculator that supports reducing asset allocation and rebalancing as described above.
Using the example, a ₹15,000/month SIP increasing at 5% per year should reach a corpus of ₹62.31 lakhs, which is in line with the range of ₹60-66 lakhs we have seen before.
The calculator allows you to save for a shorter amount of time than the goal horizon by changing the “SIP for” value so that you can save for a goal without having income or investing during the last few years. The final corpus will be adjusted accordingly downwards as shown below:
We have reached a similar conclusion in this post where we have shown the probabilities of reaching a particular target return.
Caveat on these calculations
As we have seen in the figures above, there is some element of uncertainty associated with stock market investing, which can be minimized (at the cost of lowering potential returns) but not eliminated. The investor needs to revisit the portfolio at least once a year to check if they are on track and take remedial actions like rebalancing as per the glide path and modifying the SIP amount.
See this detailed post for the process for reviewing.
A note on the effects of inflation
The final corpus value after 15 years will have its purchasing power reduced due to inflation. The “Inflation adj. corpus (lakhs)” field shows the inflation-adjusted value. In our example, the ₹ 62.31 lakhs will be worth ₹ 22.58 lakhs (in today’s money) at 7% inflation. You can choose which inflation value you think applies to your goal.
Why you need to invest as per your goals
“Writing and tracking financial goals actually fuels the commitment required to achieve them” - Gaurav Rastogi, CEO of Kuvera
As discussed here, it is essential to set a goal before investing. While investors choose a SIP amount based on available capital, it is also critical to have a target corpus in mind before investing. The method allows you to check for progress and take remedial measures if you fall short of your target corpus.
- What should be the Asset Allocation for your goals?
- Rebalancing portfolio during goal-based investing: why, when and how?
- Your portfolio needs a glide path: what, why and how?
- Set a goal before looking for what to invest in
- Never interrupt compounding by making these avoidable mistakes
Link to the Excel calculator: here
What's next? You can join the Arthgyaan WhatsApp communityYou can stay updated on our latest content and learn about our webinars. Our community is fully private so that no one, other than the admin, can see your name or number. Also, we will not spam you.
If you liked this article, please leave us a ratingThe following button will take you to Trustpilot:
Discover an article from the archives
Worked out case studies for goal-based investing
Case study: how can this middle aged investor with two children plan for retirement and children's goals?
This article shows how a single-income middle aged couple with two small children reach their retirement and children’s goals.
This article shows how a double-income couple with a 2-year old reach their FIRE dream at the age of 50.
This article shows how a double-income couple with a newborn child can invest for their future goals of FIRE and real-estate investment.
Case study: how this double income recently married family can perform DIY goal-based investment planning
This article shows how a young just-married couple can invest for future goals using the Arthgyaan goal-based investing tool.
Did you welcome a bundle of joy in your 40s? This article will discuss ways of planning the child’s (and your’s financial future)
This article shows how a very typical salaried couple with one child can invest for future goals using the Arthgyaan goal-based investing tool.
Previous and next articles:
This post discusses the concept of tax calculations and tax harvesting in a simple manner.
Published: 1 September 2021
12 MIN READ
This post shows how investors who are new to goal-based investing can get started near the mid-point of their careers.
Published: 3 September 2021
5 MIN READ
This article shows a handy ready reckoner for home loan EMI amounts for all tenures and interest rates along with the amount of principal and interest to be paid.
Published: 29 September 2023
1 MIN READ
A quick retirement calculation for a reader query who has a good amount of corpus already saved for retirement.
Published: 27 September 2023
7 MIN READ
Topics you will like:Asset Allocation (20) Basics (8) Behaviour (10) Budgeting (11) Calculator (17) Case Study (6) Children (12) Choosing Investments (38) FAQ (6) FIRE (13) Gold (11) Health Insurance (4) House Purchase (17) Insurance (15) International Investing (10) Life Stages (2) Loans (9) Market Movements (13) Mutual Funds (29) NPS (6) NRI (13) News (9) Pension (8) Portfolio Construction (46) Portfolio Review (27) Reader Questions (6) Real Estate (6) Retirement (36) Review (12) Risk (6) Safe Withdrawal Rate (5) Set Goals (27) Step by step (14) Tax (37)
1. Email me with any questions.2. Use our goal-based investing template to prepare a financial plan for yourself
use this quick and fast online calculator to find out the SIP amount and asset allocation for your goals.
Disclaimer: Content on this site is for educational purpose only and is not financial advice. Nothing on this site should be construed as an offer or recommendation to buy/sell any financial product or service. Please consult a registered investment advisor before making any investments.
This post titled I have started a 15k SIP. How much money will I have in 15 years? first appeared on 02 Sep 2021 at https://arthgyaan.com
We are currently at 299 posts and growing fast. Search this site: Copyright © 2021-2023 Arthgyaan.com. All rights reserved.