Power of Long-term Investment: How Rs 1,00,000 yearly SIP investment for just 5 years can create Rs 1,21,00,000 corpus by retirement
Retirement Planning: Investment duration is very important for getting extraordinary results in investments. One can see their corpus grow exponentially if they give it a couple more years for it to grow. For that, not even a large investment amount is required. One may make a small investment and let it grow for the long term. Likewise, a Rs 1,00,000 yearly SIP investment for just 5 years may generate a corpus of approximately Rs 1,21,00,000 by your retirement. But how many years it may take!
Retirement Planning: Have you not started your retirement planning because your investment amount is small? Do you think that such a small investment won't build a significant corpus for you? Do you feel you need a strong investment start to create a corpus that can help you meet your financial goals? You can start with the same investment amount or increase it, but there is no point delaying it. The key is to invest early rather than delaying it. A few-year delay can reduce your corpus considerably. A few more years of investment can take your corpus to new heights. It's the duration of investment that plays a major role in multiplying your wealth. A small investment can create a giant corpus in the long term. But a large amount may fall short of creating a modest fund if one doesn't give much time for their corpus to grow. Know how a Rs 1,00,000 yearly SIP investment for just 5 years may help you get Rs 1,21,00,000 by your retirement.
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(Disclaimer: This is not investment advice. Do your own due diligence or consult an expert for financial planning.)
Investment from small amount
The quantum of small and big investments may vary from person to person, but if we want to create a Rs 5 crore corpus, a Rs 5,000 monthly systematic investment plan (SIP) amount can be said to be small. But its results can be surprising.
Investment from small amount
Let's assume a person is 20 years old and starts a Rs 5,000 monthly SIP investment, where their expected annualised rate of return is 12.25 per cent. By the age of 40, even that amount can generate a Rs 5.25 crore corpus.
In 5 years, total investment will be Rs 24,00,000, estimated capital gains will be Rs 5,01,53,688, and the estimated corpus will be Rs 5,25,53,688.
Example of Rs 50,000 Monthly SIP
Let's compare it with a person who begins a Rs 50,000 monthly SIP investment and wants to build a Rs 5 crore retirement corpus. Let's see in how many years it may take to achieve the goal at a 12.25 per cent return.
Example of Rs 50,000 Monthly SIP
The target can be achieved in 21 years. But in those years, the total investment will be Rs 1,26,00,000, estimated capital gains will be Rs 4,12,50,839, while the total corpus will be Rs 5,38,50,839.
Example Rs 1 lakh vs Rs 10 lakh one-time investment
Let's see how a Rs 1 lakh and Rs 10 lakh investment will grow in 40 and 20 years, respectively, at a 12 per cent annualised return.
In 40 years, a Rs 1 lakh one-time investment will generate estimated capital gains of Rs 92,05,097 and an estimated corpus of Rs 93,05,097.
Example Rs 1 lakh vs Rs 10 lakh one-time investment
In 20 years, a Rs 10 lakh one-time investment will generate estimated capital gains of Rs 86,46,293 and an estimated corpus of Rs 96,46,293.
It shows that because of 20 years of extra compound growth, a Rs 1 lakh investment can generate higher capital gains than what an investment 10 times bigger than it can create.
Power of compounding
In the examples given above, you can see that the same results can be achieved with 2 different investment amounts. In the first case, with less than 1/5th of the amount of the second, we can build a nearly similar corpus. It shows the power of compound plays an important role in the growth of one's investments.
Power of compounding for retirement building
Now see how the power of compounding can have its role in your retirement corpus building. How an early start can give your investment a boost. Let's say you want to achieve a Rs 7 crore corpus by the age of 60 years, where you expect a 12 per cent annualised rate of return. You are 25 today. Let's see how much overall amount you need to invest extra if you delay your investment by 5 years and 10 years.
If you start at 25 years of age, you will have 35 years for investment, where an estimated monthly SIP investment of Rs 12,703, or an overall investment of Rs 53,35,260, can help you achieve the goal of a Rs 7 crore corpus.
Power of compounding for retirement building
If you start at 30 years of age, you will have 30 years for investment, where an estimated monthly SIP investment of Rs 22,721, or an overall investment of Rs 81,79,560, can help you achieve the goal of a Rs 7 crore corpus.
If you start at 35 years of age, you will have 25 years for investment, where an estimated monthly SIP investment of Rs 41,124, or an overall investment of Rs 1,23,37,200, can help you achieve the goal of a Rs 7 crore corpus.
Here, you can see that the overall estimated investment is more than 2 times for a 10-year investment delay.
Calculations for the story
The calculation will have 2 phases. In the first phase, we will show how a Rs 1,00,000 yearly SIP will grow in 5 years. In the second phase, we will show how it will grow in the next 25 years without the investor making any fresh investment. So, a person starting a Rs 1 lakh yearly SIP investment at 30 years of age may have that corpus by 60 if they get 12 per cent annualised growth on their yearly SIP investment.
Corpus from Rs 1 lakh yearly investment in 5 years
In 5 years, estimated capital gains will be Rs 2,11,518.9, while the estimated corpus will be Rs 7,11,518.9.
Retirement corpus in next 25 years
In the second phase, we will let the Rs 7,11,518.9 corpus grow at a 12 per cent annualised return rate for 25 years.
Retirement corpus in next 25 years
In 25 years, estimated capital gains on this investment will be Rs 2,06,05,535, while the estimated retirement corpus will be Rs 2,13,17,054.