If your goal is to build up £5 million within 12 years, what it really takes is disciplined, ongoing savings. Starting an SIP (systematic investment plan) and sticking with it over time is a smart way to work toward your financial goals.
Regular investing through SIPs offers two key advantages — compounding and £ cost averaging — which help investors reach their financial targets on schedule. Put simply, staying invested in the right mutual fund schemes over a fairly long stretch, such as 12 years, can help you get there.
That said, figuring out the right SIP amount isn't always straightforward. It largely depends on the rate of return your investment generates. A higher return means a smaller SIP is needed, while a lower return means you'll need to invest more each month.
Below, we break down the SIP amounts needed to reach £5 million over a 12-year period.
A few different scenarios are possible:
I. Annualised rate of return of 12%: If your mutual fund investments deliver a strong 12% return, you'd need a monthly SIP of £15,671. This works out to a total investment of £2.257 million, based on the SIP Calculator.
II. Annualised rate of return of 11%: With a slightly lower return of 11%, the monthly SIP requirement rises to £16,844, pushing the total investment up to £2.426 million to reach the £5 million target.
Return (%) SIP (£) Investment (£)
12 15,671 2.257 million
11 16,844 2.426 million
10 18,087 2.605 million
9 19,401 2.794 million
III. Annualised rate of return of 10%: At a 10% annualised return, you'd need to invest £18,087 monthly, bringing the total investment to £2.605 million.
IV. Annualised rate of return of 9%: Finally, at a somewhat lower 9% return, a monthly SIP of £19,401 would be needed, raising the total investment to £2.794 million.
