- Date : 12/07/2022
- Read: 5 mins
A Rs 25 crore retirement corpus will be good enough for many people to spend their golden years on their own terms and conditions. In this article, we discuss various scenarios for achieving this target.
Many individuals have aspirations that they are unable to fulfil during their working years due to financial responsibilities and liabilities. These financial responsibilities include building a fund for their child’s higher education and marriage. One may also have a home loan and other loans. So, they postpone their aspirations to retirement when they have discharged all their financial responsibilities and liabilities.
However, once they have retired, they can fulfil their secret aspirations only if they have built an adequate retirement fund that can take of their financial needs. For example, if an individual's monthly expenses are Rs. 70,000, with 7% inflation p.a., the monthly expenses will increase to Rs. 3,79,920 per month, which is more than 5X in 25 years. Similarly, if an individual's monthly expenses are Rs. 1,00,000, with 7% inflation p.a., the monthly expenses will increase to Rs. 5,42,743 per month in 25 years. This article will discuss how individuals can start building their retirement fund of Rs 25 crore when they are in their 30s. It will help them live their retirement life on their terms and fulfil all their aspirations.
Start investing early to leverage the power of compounding
You should start investing in mutual funds for your retirement early in your career, preferably from when you first start to earn money. The power of compounding needs time to bear fruits. When you start early, you have time on your side. As a young investor, you can afford to take the risk and start an SIP in some of the best mutual funds.
To build a retirement investment kitty of Rs 25 crore, you will need to invest Rs 36,000 every month for 30 years (with a 15% expected rate of return). As shown below, you can use a goal calculator to determine the SIP amount.
Image: Goal calculator
(Source: https://www.mutualfundssahihai.com/en/calculators)
The above calculator shows how your investment of Rs 1.3 crore (Rs 36,110) spread over 30 years can become Rs 25 crore with a 15% expected rate of return. Remember, any delay in starting your investments would mean the SIP investment amount will have to be increased substantially to reach the Rs 25 crore target.
Also Read: How To Make Your Retirement Funds Last A Lifetime?
As seen in the above table, every five-year delay in starting the SIP investment will substantially increase the required SIP amount. So, the sooner you start investing, the better. Preferably, you should start building a mutual fund portfolio for your retirement when you start working. An early start will help you avoid or correct any retirement planning blunders that you may make along the way.
Risk profile influences the returns and SIP amount
In the above table, we have taken the expected rate of return of 15% CAGR, which is possible with equity mutual funds. Investors with an aggressive risk profile are recommended to invest in equity mutual funds. However, not all investors will have this kind of risk profile.
There are investors with a moderate or conservative risk profile. It is recommended that these investors invest in hybrid or debt mutual funds. Let us see how much these investors will have to invest if the expected rate of return is lower than 15% CAGR.
As seen in the above table, if your expected rate of return falls from 15% to 12% CAGR, the SIP investment amount will almost double. The lower the expected rate of return, the higher the SIP investment amount required to achieve the target of Rs 25 crore.
Top funds that have given the best returns
Some of the equity mutual funds that have given the best returns in the last 10 years include:
(Source: https://www.morningstar.in/tools/top-performing-mutual-fund.aspx)
Also Read: How To Retire Early If You Are Not A Billionaire?
Step-up SIP to accumulate the retirement fund
In the earlier section, we saw how a 30-year-old individual can accumulate a retirement corpus of Rs 25 crore in 30 years. With a monthly SIP of Rs 36,110 and a 15% CAGR expected rate of return, the target can be achieved. However, most of us get an annual increment in salary ranging from 5% to 10%. If we work out a smart investment option and increase the monthly SIP amount by 10%, we can achieve the Rs 25 crore retirement corpus with a lower SIP amount.
For example, you can start a monthly SIP of Rs 22,151 and increase the SIP amount by 10% every year. In 30 years, you will accumulate Rs 25 crore if the expected rate of return is 12% CAGR. With a step-up SIP, you will see two benefits in the above scenario:
- Lower SIP: The monthly SIP amount falls from Rs 36,110 to Rs 22,151. The lower amount is manageable for more people. A lower SIP amount leaves more money in one's hand to use for other purposes such as home loan EMI or regular expenses.
- Lower risk: The expected rate of return reduces from the earlier 15% CAGR to 12% CAGR. It means the investor has to take a lower risk with a step-up SIP.
Similarly, you can use some online SIP calculators and check various scenarios. Adjust the investment tenure, SIP amount, and expected rate of return, and see how you can go about your wealth creation journey to achieve the Rs 25 crore retirement fund target.
Also Read: Retiring In Uncertain Times? Try The Three-Bucket Strategy
Conclusion
At the beginning of this article, we mentioned that many people have secret aspirations during their working years. They are not able to fulfil them due to their financial responsibilities and liabilities. But now that we have shown how anyone with a little dedication can accumulate a retirement fund of Rs 25 crore, go ahead and fulfil all your aspirations. After all, retirement should be about enjoying life to the fullest.
Many individuals have aspirations that they are unable to fulfil during their working years due to financial responsibilities and liabilities. These financial responsibilities include building a fund for their child’s higher education and marriage. One may also have a home loan and other loans. So, they postpone their aspirations to retirement when they have discharged all their financial responsibilities and liabilities.
However, once they have retired, they can fulfil their secret aspirations only if they have built an adequate retirement fund that can take of their financial needs. For example, if an individual's monthly expenses are Rs. 70,000, with 7% inflation p.a., the monthly expenses will increase to Rs. 3,79,920 per month, which is more than 5X in 25 years. Similarly, if an individual's monthly expenses are Rs. 1,00,000, with 7% inflation p.a., the monthly expenses will increase to Rs. 5,42,743 per month in 25 years. This article will discuss how individuals can start building their retirement fund of Rs 25 crore when they are in their 30s. It will help them live their retirement life on their terms and fulfil all their aspirations.
Start investing early to leverage the power of compounding
You should start investing in mutual funds for your retirement early in your career, preferably from when you first start to earn money. The power of compounding needs time to bear fruits. When you start early, you have time on your side. As a young investor, you can afford to take the risk and start an SIP in some of the best mutual funds.
To build a retirement investment kitty of Rs 25 crore, you will need to invest Rs 36,000 every month for 30 years (with a 15% expected rate of return). As shown below, you can use a goal calculator to determine the SIP amount.
Image: Goal calculator
(Source: https://www.mutualfundssahihai.com/en/calculators)
The above calculator shows how your investment of Rs 1.3 crore (Rs 36,110) spread over 30 years can become Rs 25 crore with a 15% expected rate of return. Remember, any delay in starting your investments would mean the SIP investment amount will have to be increased substantially to reach the Rs 25 crore target.
Also Read: How To Make Your Retirement Funds Last A Lifetime?
As seen in the above table, every five-year delay in starting the SIP investment will substantially increase the required SIP amount. So, the sooner you start investing, the better. Preferably, you should start building a mutual fund portfolio for your retirement when you start working. An early start will help you avoid or correct any retirement planning blunders that you may make along the way.
Risk profile influences the returns and SIP amount
In the above table, we have taken the expected rate of return of 15% CAGR, which is possible with equity mutual funds. Investors with an aggressive risk profile are recommended to invest in equity mutual funds. However, not all investors will have this kind of risk profile.
There are investors with a moderate or conservative risk profile. It is recommended that these investors invest in hybrid or debt mutual funds. Let us see how much these investors will have to invest if the expected rate of return is lower than 15% CAGR.
As seen in the above table, if your expected rate of return falls from 15% to 12% CAGR, the SIP investment amount will almost double. The lower the expected rate of return, the higher the SIP investment amount required to achieve the target of Rs 25 crore.
Top funds that have given the best returns
Some of the equity mutual funds that have given the best returns in the last 10 years include:
(Source: https://www.morningstar.in/tools/top-performing-mutual-fund.aspx)
Also Read: How To Retire Early If You Are Not A Billionaire?
Step-up SIP to accumulate the retirement fund
In the earlier section, we saw how a 30-year-old individual can accumulate a retirement corpus of Rs 25 crore in 30 years. With a monthly SIP of Rs 36,110 and a 15% CAGR expected rate of return, the target can be achieved. However, most of us get an annual increment in salary ranging from 5% to 10%. If we work out a smart investment option and increase the monthly SIP amount by 10%, we can achieve the Rs 25 crore retirement corpus with a lower SIP amount.
For example, you can start a monthly SIP of Rs 22,151 and increase the SIP amount by 10% every year. In 30 years, you will accumulate Rs 25 crore if the expected rate of return is 12% CAGR. With a step-up SIP, you will see two benefits in the above scenario:
- Lower SIP: The monthly SIP amount falls from Rs 36,110 to Rs 22,151. The lower amount is manageable for more people. A lower SIP amount leaves more money in one's hand to use for other purposes such as home loan EMI or regular expenses.
- Lower risk: The expected rate of return reduces from the earlier 15% CAGR to 12% CAGR. It means the investor has to take a lower risk with a step-up SIP.
Similarly, you can use some online SIP calculators and check various scenarios. Adjust the investment tenure, SIP amount, and expected rate of return, and see how you can go about your wealth creation journey to achieve the Rs 25 crore retirement fund target.
Also Read: Retiring In Uncertain Times? Try The Three-Bucket Strategy
Conclusion
At the beginning of this article, we mentioned that many people have secret aspirations during their working years. They are not able to fulfil them due to their financial responsibilities and liabilities. But now that we have shown how anyone with a little dedication can accumulate a retirement fund of Rs 25 crore, go ahead and fulfil all your aspirations. After all, retirement should be about enjoying life to the fullest.
