Power of One-time Investment: How Rs 1,80,000 lump sum deposit on your child's 18th birthday can generate Rs 2,10,00,000 retirement fund
Power of One-time Investment: If you are celebrating your child's 18th birthday today, your one-time investment of Rs 1,80,000 for them may generate a fund of over Rs 2.10 crore by their retirement. The condition is to let the amount grow by taking the advantage of the power of compounding.
Power of one-time investment, power of compouding, retirement corpus: Making a one-time investment for your child on their 18th birthday for their retirement may sound odd, but this unconventional gift for them may secure their financial future to a great extent. If not all, it may help them achieve at least some of their important financial goals. It's because making an investment early for their retirement, which will come a few decades later, will provide years for compound growth on the investment. The investment amount can be more than Rs 1,80,000 also, but even that amount may create a substantial retirement corpus when they retire at 60 years of age. Know how a Rs 1,80,000 one-time investment on your child's 18th birthday may create an approximately Rs 2.10 crore corpus by their retirement.
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(Disclaimer: This is not investment advice. Do your own due diligence or consult an expert for financial planning.)
Benefits of early investment for your child
The best time to start investing for your kid is at their birth. It can give years of compound growth to investments that can magnify them by multiple times by the time your kid reaches college.
Let's see how investments made at the birth of their child can grow by their 18th birthday.
Corpus from Rs 12,000 monthly SIP by your child's 18th birthday
Let's assume you will get a 12 per cent annualised return on your investment.
In 18 years, your total investment will be Rs 25,92,000, estimated capital gains will be Rs 59,48,743, and the estimated corpus will be Rs 85,40,743.
Corpus from Rs 12,000 monthly SIP by your child's 20th birthday
Now at this stage, if you invest the same amount for 2 more years, see what can happen.
In 20 years, your total investment will be Rs 28,80,000, estimated capital gains will be Rs 81,58,288, and the estimated corpus will be Rs 1,10,38,288.
Corpus from Rs 1 lakh yearly SIP by your child's 18th birthday
Now, let me put it another way: on the birth of your child, you invest Rs 1,00,000 in an SIP and do it for 18 years in succession. Let's see the corpus you may generate at a 12 per cent annualised return!
In 18 years, your total investment will be Rs 18,00,000, estimated capital gains will be Rs 44,43,968.08, and the estimated corpus will be Rs 62,43,968.08.
Corpus from Rs 1 lakh yearly SIP by your child's 20th birthday
What if do it for 2 more years?
In 20 years, your total investment will be Rs 20,00,000, estimated capital gains will be Rs 60,69,873.55, and the estimated corpus will be Rs 80,69,873.55.
Corpus from Rs 2,00,000 one-time investment by your child's 18th birthday
In 18 years, estimated capital gains will be Rs 13,37,993, and the estimated corpus will be Rs 15,37,993.
Corpus from Rs 5,00,000 one-time investment by your child's 18th birthday
However, if instead of Rs 2,00,000, you invest Rs 5,00,000 and get a 12 per cent annualised return on your investments. Let's see the corpus you may generate in 18 years.
In 18 years, estimated capital gains will be Rs 33,44,983, and the estimated corpus will be Rs 38,44,983.
Corpus from Rs 5,00,000 one-time investment by your child's 20th birthday
However, if you let it grow for 2 more years, estimated capital gains will be Rs 43,23,147, and the estimated corpus will be Rs 48,23,147.
Power of compounding
In the examples above, you can see how the corpus is substantially larger than the investment. It is because of the years of compounding that you may get. Just investing for 2 more years, or letting your one-time investment grow for 2 extra years, can grow your money faster.
How corpus can be used for child
At 18 years of age, or if you want to invest for more years, at a higher age, your child will have a substantial amount that can be used primarily for their education. Since education is getting expensive, having a large corpus in hand may help you a great deal.
Calculation for story
In our calculations, we will show how a Rs 1,80,000 one-time investment made on the 18th birthday of your child can grow to approximately Rs 2.10 crore by the time they retire. We are taking 12 per cent as the annualised return, while the retirement age in this case will be 60 years. So, the child will get that amount after 42 years.
Retirement fund from Rs 1,80,000 one-time investment
In 42 years, a Rs 1,80,000 one-time investment will have estimated capital gains of Rs 2,08,30,164.72, while the estimated corpus will be Rs 2,10,10,164.72.
Retirement fund from Rs 5,00,000 one-time investment
Now let's see one more calculation, where instead of making a one-time investment of Rs 1,80,000, we invest Rs 5,00,000. Let's see what will be the results.
In 42 years, estimated capital gains will be Rs 5,78,61,568.66, and the estimated corpus will be Rs 5,83,61,568.66.
Conclusion
An early start can give you an edge to create a large corpus for your child's retirement corpus or other financial goals. If you start with a large amount, it can be a cherry on the cake.