How to amass a ₹1 crore corpus for buying a home

My husband and I earn ₹20 lakh every year and invest ₹40,000 every month through a systematic investment plan (SIP) which I started 2 months ago. At present, I have ₹3 lakh in direct stocks and some investment in gold. We want to accumulate a down payment of ₹1 crore in six years to buy a house. By how much should we step up our monthly investment every year and what funds should we invest in to meet this goal. 

—Name withheld on request

Your plan to step up the SIPs every year to build a downpayment corpus is good as you would have been able to reach around ₹44-48 lakh with the present monthly investment of ₹40,000 per month for the next 6 years, if we assume an annual return of 10-12%. To cover the difference amount, a step-up strategy will be quite effective. Assuming the same rate of returns, you need to increase your SIPs by 35-40% every year. In the fifth year, you will need to invest almost 3-4 times what you are doing right now. If this step-up is quite high, which usually is between 10% and 25% for most investors, then you will either have to increase your monthly investment from here onwards or push the goal ahead. We would like you to achieve your goal as per your plan. 

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While we do not have the details of your cash flow in terms of expenses and monthly savings potential, considering your income of ₹20 lakh you can try to invest more as the present annual investment comes to ₹4.8 lakh. If you try to increase your SIPs to ₹60,000 every month, you will just have to increase it annually by 20%. 

Coming to the funds, you need to invest in more large-cap and mid-cap funds as the time horizon is 6 years. Following are a few suggestions which you can evaluate. UTI Nifty Index Fund, Nippon India Large Cap Fund, Parag Parikh Flexi Cap Fund, HDFC Flexicap Fund and SBI Large & Mid Cap Fund. 

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While the growth potential of mid-cap and small-cap funds is higher in the long term, we have to keep in mind that our investment horizon is 6 years. Hence, it could be good to invest in a blend of large-cap and flexi-cap funds.

Harshad Chetanwala is co-founder at MyWealthGrowth.com