Retirement Planning via One-Time Investment: How your Rs 7,00,000 investment can be worth Rs 4,32,00,000 in long term

Mutual fund lump sum investment is a method to invest a sum one time. When a mutual fund investor invests such an amount, the mutual fund house issues them net asset value (NAVs), which are of the same value. When the investment grows, the value of all these NAVs grow simultaneously. It may fall if the fund's performance is not up to the mark.

Sometimes when the share market rallies, equity mutual funds also rise. As a result, many mutual fund investors flock to make a one-time investment. But the other aspect is that even a rising market can fall sharply because of external factors. In such a situation, it is important to have a long-term investment horizon. It will also give more years for compound growth of your investments.

Compound returns are returns on returns. As a result, the corpus rises faster as it gets older. The power of compounding can give surprising results in the long run. Just see a couple of examples.

Now take the example of a Rs 5,00,000 one-time investment where the annualised return is 12 per cent. Here's how it can grow in 10, 20, 30, and 40 years. In 10 years, estimated capital gains will be Rs 10,52,924, and the estimated corpus will be Rs 15,52,924. In 20 years, estimated capital gains will be Rs 43,23,147, and the estimated corpus will be Rs 48,23,147.

In 30 years, estimated capital gains will be Rs 1,44,79,961, and the estimated corpus will be Rs 1,49,79,961. In 40 years, estimated capital gains will be Rs 4,60,25,485, and the estimated corpus will be Rs 4,65,25,485. You can see that the corpus is growing faster with time as compounding is more effective in the long term.

Now see how a 1 per cent difference in return can create a huge gap between two corpuses created because of the power of compounding.  If A and B make a Rs 6,00,000 investment and get a 12 per cent and 13 per cent return, let's see how much corpus they can create in 20 and 40 years.

At a 12 per cent annualised return in 20 years, A's estimated gain will be Rs 51,87,776, and the estimated corpus will be Rs 57,87,776. At a 13 per cent annualised return in 20 years, B's estimated gain will be Rs 63,13,853, and the estimated corpus will be Rs 69,13,853.

At a 12 per cent annualised return in 40 years, A's estimated gain will be Rs 5,52,30,582, and the estimated corpus will be Rs 5,58,30,582. At a 13 per cent annualised return in 40 years, B's estimated gain will be Rs 7,90,68,931, and the estimated corpus will be Rs 7,96,68,931. Just a look at the estimated corpus created in 40 years: a 1 per cent difference creates a gap of around Rs 2.40 crore.

We will calculate how your Rs 7,00,000 investment can create an estimated corpus worth Rs 4,32,00,000. We will take the estimated annualised return of 12.5 per cent. We will see how this corpus will grow in phases.

In 10 years, estimated gains will be Rs 15,73,125, and the estimated corpus will be Rs 22,73,125.

In 20 years, estimated gains will be Rs 66,81,566, and the estimated corpus will be Rs 73,81,566.

In 30 years, estimated gains will be Rs 2,32,70,313, and the estimated corpus will be Rs 2,39,70,313.

In 35 years, estimated gains will be Rs 4,24,95,283, and the estimated corpus will be Rs 4,31,95,283.

Staying for a few years extra in your investment can make a huge difference in the corpus. Just look at the growth between 30 and 35 years, growth is significant.