Power of Rs 6,00,000 One-time Investment in Mutual Funds: How you may generate Rs 2,26,00,000 corpus from Rs 6 lakh lump sum deposit by 55 years of age
Mutual Fund One-time Investment: Long-term retirement corpus planning may have its own benefits. The biggest of them is that one may generate a retirement corpus from a small mutual fund one-time investment. Know the possibility of creating a nearly Rs 2,26,00,000 retirement corpus by 55 years of age from a mutual fund lump sum investment of Rs 6,00,000.
Retirement Corpus Planning, Mutual Fund One-time Investment: If you are eyeing a comfortable retirement, you need to have some passive income source that can fulfil your retirement requirements. Many people find that source of income in a retirement fund. Passive income from such an investment may help one spend the retirement phase of their life without any worry. For such people, an early start to investing from a small investment amount may be more important than a late start from a large amount. One may find surprising results from their mutual fund lump sum deposit. A small investment may generate a sizeable retirement corpus in the long run. The power of compounding may come handy in the long term and can create a fund that may help one achieve their retirement financial goal. Can their Rs 6,00,000 one-time investment generate a retirement corpus of nearly Rs 2,26,00,000 by 55 years of age? Know its possibility –
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(Disclaimer: This is not investment advice. Do your own due diligence or consult an expert for financial planning.)
Impact of long-term investment
Let's understand it from an example. A person starts a Rs 100 daily systematic investment plan (SIP) in a mutual fund, where they are expecting a 12 per cent annualised return from their investment. They don't want to increase their investment amount lifelong. Let's see what kind of results they may achieve in the long run.
In 10 years, the total investment will be Rs 3,65,000, estimated capital gains will be Rs 3,40,735, and the estimated corpus will be Rs 7,05,735.
In 20 years, the total investment will be Rs 7,30,000, estimated capital gains will be Rs 23,18,396, and the estimated corpus will be Rs 30,48,396.
Impact of long-term investment
In 30 years, the total investment will be Rs 10,95,000, estimated capital gains will be Rs 97,29,770, and the estimated corpus will be Rs 1,08,24,770.
In 40 years, the total investment will be Rs 14,60,000, estimated capital gains will be Rs 3,51,78,149, and the estimated corpus will be Rs 3,66,38,149.
Just look at the corpus created in the first 20 years and the second 20 years. The corpus created in the second 20-year period is 10 times larger than the corpus created in the first phase of 20 years.
Mutual fund lump sum investment growth
Now understand the same phenomenon from the example of a one-time investment in a mutual fund scheme. We are investing Rs 2,00,000 in a mutual fund scheme where the expected annualised growth is 12 per cent. Let's see the corpus created in different stages of life.
In 10 years, estimated capital gains will be Rs 4,21,170, and the estimated corpus will be Rs 6,21,170.
In 20 years, estimated capital gains will be Rs 17,29,259, and the estimated corpus will be Rs 19,29,259.
Mutual fund lump sum investment growth
In 30 years, estimated capital gains will be Rs 57,91,984, and the estimated corpus will be Rs 59,91,984.
In 40 years, estimated capital gains will be Rs 1,84,10,194, and the estimated corpus will be Rs 1,86,10,194.
In this example, look at the growth in the first 20 years and the second 20 years. There is no match.
Power of compounding in investment planning
In the 2 examples given above, the exponential growth with time is possible because of the power of compounding. The compound growth of an investment is more visible in the long term. The higher the investment period, the faster the corpus may grow. Because of this, a small investment for a long term can easily create a larger corpus compared to a high-amount, low-duration investment period. Let's see two examples of this change.
Rs 2,000 Monthly SIP for 40 years vs Rs 20,000 SIP for 20 years
In this example, you can see that the first monthly SIP investment amount is 1/10th of the second. At a 12 per cent annualised growth of the investment, let's see which can create a larger corpus.
At a Rs 2,000 monthly SIP investment, the total investment in 40 years will be Rs 9,60,000, estimated capital gains will be Rs 1,86,26,142, and the estimated corpus will be Rs 1,95,86,142.
Rs 2,000 Monthly SIP for 40 years vs Rs 20,000 SIP for 20 years
At a Rs 20,000 monthly SIP investment, the total investment in 20 years will be Rs 48,00,000, estimated capital gains will be Rs 1,35,97,147, and the estimated corpus will be Rs 1,83,97,147.
Now look at the total investment and the corpus created in each case. A Rs 2,000 monthly SIP investment is a clear winner.
Rs 1 lakh one-time investment for 35 years vs Rs 10 lakh lump sum investment for 14 years
Here also, you can see that the first investment amount is just 1/10th of the second amount. At a 12 per cent annualised return, let's see how much corpus they may create in 35 years and 14 years, respectively.
From a Rs 1 lakh investment in 35 years, estimated capital gains will be Rs 51,79,962, and the estimated corpus will be Rs 52,79,962.
Rs 1 lakh one-time investment for 35 years vs Rs 10 lakh lump sum investment for 14 years
From a Rs 10 lakh investment in 14 years, estimated capital gains will be Rs 38,87,112, and the estimated corpus will be Rs 48,87,112.
The one-time investment example also clearly illustrates the power of compounding.
Calculations for story
Here, we will see the possibility of creating a nearly Rs 2,26,00,000 retirement corpus from a Rs 6,00,000 one-time investment. Also, can it be created by 55 years of age? We will calculate it at a 12 per cent annualised return and will show it in different phases of investment growth.
Corpus from Rs 6,00,000 one-time investment in 10 years
In 10 years, estimated capital gains will be Rs 12,63,509, and the estimated corpus will be Rs 18,63,509.
Corpus from Rs 6,00,000 one-time investment in 20 years
In 20 years, estimated capital gains will be Rs 51,87,776, and the estimated corpus will be Rs 57,87,776.
Corpus from Rs 6,00,000 one-time investment in 30 years
In 30 years, estimated capital gains will be Rs 1,73,75,953, and the estimated corpus will be Rs 1,79,75,953.
Corpus from Rs 6,00,000 one-time investment in 32 years
In 32 years, estimated capital gains will be Rs 2,19,49,036, and the estimated corpus will be Rs 2,25,49,036.
When should one start to create such corpus by 55 years of age?
Here, we can see that it may take approximately 32 years to create a nearly Rs 2,25,49,036 retirement corpus from Rs 6,00,000 one-time investment. So, if one makes that investment at 23 years of age, they may create the corpus by 55 years of age.