Building a corpus of Rs 5 crore is a major financial milestone that can provide long-term security and financial independence. While achieving this goal may seem challenging, individuals earning Rs 1 lakh per month can reach it through disciplined investing and a well-planned investment strategy.
Regular contributions to mutual fund Systematic Investment Plans (SIPs) can help investors benefit from the power of compounding, enabling wealth to grow significantly over time. If one can set aside around 30-40% of their income, they may be able to create a Rs 5 crore corpus over 25 years.
Assuming mutual funds' historical returns of 12% p.a., let's see how the investment journey unfolds:
How Much Should You Invest?
Monthly SIP: Rs 30,000
Interest rate: 12% per annum.
Time period: 24 years
Total investment value: Rs 86.4 lakh
Estimated returns: Rs 4.15 crore
Final corpus: Rs 5.01 crore
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For those who can afford to invest more, increase the SIP amount by Rs 10,000 to significantly achieve the goal earlier:
Monthly SIP: Rs 40,000 per month
Time period: 22 years
Interest rate: 12% per annum.
Total investment value: Rs 1.05 crore
Estimated returns: Rs 4.12 crore
Final corpus: Rs 5.18 crore
Can ‘Step-Up' Technique Help?
Now, if the same person with a Rs 1 lakh monthly salary invests 30% (Rs 30,000) of their pay every month, and increases their investment amount by 10% every year, a retirement corpus of Rs 5 crore can be achieved in about 19 years instead of 25. This is called the ‘step-up' technique and allows investors to align their SIPs with income growth over time.
Monthly SIP: Rs 30,000
Interest rate: 12% per annum
Annual Step-up: 10%
Time period: 19 years
Total investment value: Rs 1.84 crore
Estimated returns: Rs 3.24 crore
Final corpus: Rs 5.08 crore
While mutual fund investments are known for their attractive returns, they are volatile in nature and not guaranteed. As a result, investors with lower risk appetite may consider diversifying investments across various investment instruments.
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Instead of fully relying on equity mutual funds, spreading investments can help manage risk while maintaining the potential for steady long-term returns. Investors are advised to consult financial experts before making long-term commitments to avoid any financial stress later.
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