Planning for retirement well in advance often feels overwhelming, especially when the target is to build a large corpus. Due to the rising cost of living and a possible surge in monthly budget to meet unforeseen expenses, it's crucial to accumulate a sizeable fund for a peaceful retirement. Experts and financial advisors often advise evaluating factors like inflation and rising health costs in old age for a prudent retirement investment strategy.
For many investors, aiming for a Rs 3 crore retirement fund may seem a tough target initially, but it can be achieved with meticulous financial planning. Mutual funds have become popular among Indian investors for retirement planning, as they offer enormous flexibility to build a large corpus. A financial strategy involving both a lump sum investment and a systematic investment plan (SIPs) could be suitable to achieve the target of Rs 3 crore.
Starting with a lump sum of Rs 5 lakh and stepping up the monthly SIPs by 5% each year could help you to build a corpus of Rs 3 crore without any additional financial burden. The key here lies in harnessing the twin power of compounding and incremental contributions.
A lump sum amount provides an immediate boost and monthly SIPs ensure consistent inflows that grow steadily over a long-term horizon. You can even use the step-up SIP feature, which allows increasing investment at regular intervals, to reach your target at a shorter duration while keeping pace with inflation and aligning the investments with rising income.
Let's see how an investment strategy involving both lump sum and step-up SIPs could be helpful to reach the target of Rs 3 crore.
Lump Sum of Rs 5 lakh To Reach Rs 3 Crore Retirement Fund
Compared to SIPs, lump-sum investments might deliver higher returns if invested at the right time. However, they carry a greater risk due to the fluctuations across various market cycles.
Assuming someone decides to invest Rs 5 lakh in a mutual fund and gets an annual return of 12% on it, then here's what their investment could look like:
Investment amount: Rs 5,00,000
Investment duration: 37 years
Expected rate of return: 12%
Estimated returns: Rs 3,26,15,921
Total value: Rs 3,31,15,921
Rs 3 Crore Retirement Fund Through SIPs
Systematic Investment Plans (SIPs) in mutual funds are considered one of the most popular financial investment tools in recent times. These are not only beneficial for long-term wealth creation, but also take advantage of the power of compounding.
To achieve a target of Rs 3 crore, here is how much time it will take with a monthly investment of Rs 10,000 at an assumed interest rate of 12% per annum.
Monthly investment: Rs 10,000
Investment duration: 29 years
Expected rate of return: 12%
Invested amount: Rs 34,80,000
Estimated returns: Rs 2,77,32,516
Total value: Rs 3,12,12,516
Also Read: Rs 2,000 For 25 Years Vs Rs 20,000 For 5 Years: Which SIP Gives Better Returns?
The Rs 3 crore target can be achieved early with step-up SIPs. Usually, when people start investing at a later stage, they tend to go for higher SIP amounts to make up for the lost time, since these boost the power of compounding.
Here, let's assume that a person invests Rs 10,000 in SIPs for 12 months and later steps up the monthly SIPs by 5% each year.
Monthly investment: Rs 10,000
Step Up % (annual): 5%
Investment duration: 26 years
Expected rate of return: 12%
Invested amount: Rs 61,33,614
Estimated returns: Rs 2,51,16,409
Total value: Rs 3,12,50,023
ALSO READ: Earning Rs 1 Lakh Monthly? Here's How You Can Reach Rs 1-Crore Corpus Quickly
As per the above scenarios, a step-up SIP could be helpful to reach the target of Rs 3 crore in a shorter duration compared to a lump sum investment or an SIP. The key is consistency and a combination of these investment plans could also be helpful in achieving your goal even in a shorter tenure.
However, mutual investments are not guaranteed due to market-linked risks. It's advisable to make any investment decision after carefully assessing risk factors, financial goals and time horizon. It could be a prudent step to consult a financial expert before choosing the investment instruments.
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