Creating a retirement fund of Rs 10 crore may sound impossible. But, this fund can be created with smart planning, discipline in investment and patience. Compounding plays the biggest role in creating a big fund in the long term
If you want to create a big fund through investment, then it is important to understand one thing first. The sooner you start investing, the bigger the fund you will be able to create. Creating a retirement fund of Rs 10 crore may sound impossible. But, this fund can be created with smart planning, discipline in investment and patience. Compounding plays the biggest role in creating a big fund in the long term.
The younger the age, the lower will be the SIP amount
If you are 25 years old today, then to create a retirement fund of Rs 10 crore by the age of 60 , you will have to invest Rs 15,000 every month through SIP. This investment will have to be made in the equity scheme of a mutual fund. In this calculation, the annual return of the fund is considered to be 12 percent. If you want to achieve this target at the age of 30, then your SIP amount will increase to Rs 28,000 every month. If you start investing even later, say at the age of 40, then your monthly SIP amount will increase to Rs 1,00,000. This is about six times the required SIP amount at the age of 25.
You can withdraw up to 3-3.5 percent every year
A fund of Rs 10 crore may seem like a lot to you right now. But, this fund is necessary for your retirement. Most financial planners say that during retirement you should withdraw only 3-3.5 percent of your fund every year. By doing this, your money will last as long as you want. This means that if you have Rs 10 crore at the age of 60, then withdrawing 3 percent will give you Rs 30 lakh in a year. If you withdraw 3.5 percent in a year, you will have Rs 35 lakh.
The impact of inflation also needs to be taken into account in retirement planning
After retirement, Rs 30 lakh or Rs 35 lakh per year can be sufficient for you. This will easily cover your medical expenses, food expenses and lifestyle expenses. Secondly, you will not have to worry about the retirement fund getting exhausted soon. Most importantly, you will also have to take care of the impact of inflation on your retirement fund.
The benefit of compounding is available in long term investments
The sooner you start investing, the more time compounding gets to grow your investment. Compounding means that your money earns a return. That return gets added to your money. This gives you more returns on your money. This process continues for years. It is like planting a tree. The sooner you plant a tree, the sooner it will start growing. After a few years it will become a big tree.
You can also start with a lower SIP amount
For example, investing Rs 15,000 every month at the age of 25 does not seem difficult. But, investing Rs 1,00,000 every month at the age of 40 seems quite difficult. Especially when the person is burdened with expenses like children’s education and home loan.
You can increase your SIP amount by 10% every year
In such a situation, the first step for you is to start investing as much amount as you can every month through SIP. If you feel that Rs 15,000 per month is too much, then you can start investing with Rs 10,000 or Rs 5,000 every month. Then as your income increases, you can increase the SIP amount. If you increase the SIP amount by even 10% every year, then the burden of investing every month will be reduced on you.
Discipline must be maintained in investing
You have to invest this in equity funds. In the long term, the returns of equity schemes of mutual funds are higher than any other asset class. In 30-35 years, the returns of equity funds are excellent. After starting the investment, you have to keep reviewing it. Sometimes the value of your investment may increase or decrease due to fluctuations in the market. But, you do not have to pay attention to this. You have to maintain discipline in investing without coming under any pressure. Along with continuing the investment in the long term, you will also have to take health insurance and term insurance.
