Retirement planning: How to accumulate Rs 10 crore corpus in 10 years?

Retirement planning, How much to invest to get 10 crore in 10 years: Time plays an important role when it comes to investing. The earlier one starts, the more chances there are to build a large corpus. However, if an investor decides to accumulate a corpus of Rs 10 crores in 10 years, it may leave them confused about whether investing in an equity mutual fund scheme via a SIP is the best way to achieve the goal or whether they should opt for other investment options.

With SIPs, one can invest a certain amount periodically (often monthly) in the mutual fund of their choice. Through a step-up SIP, one also increases the monthly investment by a certain percentage every year, often in line with their annual salary hike.

How to accumulate a Rs 10 crore corpus in 10 years?

Assuming an expected return rate of 12 per cent per year, an investor would need to invest Rs 4.34 lakh per month in equity funds through SIP to create a corpus of over Rs 10 crore in 10 years.

Calculation

Monthly Investment: 4,34,000/month

Expected return rate: 12 per cent

Time period: 10 years

Total value return: Rs 9,99,05,803

However, Naveen Kukreja, Co-Founder and CEO of Paisabazaar, says that one needs to diversify their portfolio to reach Rs 10 crore goal. So, one can not get a 12 per cent return on their entire investment.   

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Here's what expert suggests 

As different asset classes rarely move in tandem, portfolio diversification through a mix of asset classes helps reduce the risk to an individual's portfolio. Naveen Kukreja, Co-Founder and CEO of Paisabazaar, suggests investors maintain an asset allocation ratio of 8:2 in equity and debt for their monthly contributions towards their post-retirement portfolio.

He breaks down the Rs 10-crore goal into two steps.

He suggests that for an annualised return of 12 per cent, an investor would need to make a monthly SIP contribution of Rs 3.50 lakh in equity mutual funds to create a corpus of Rs 8.05 crore in 10 years.

Calculation

Monthly Investment: 3,50,000/month

Expected return rate: 12 per cent

Time period: 10 years

Total value return: Rs 8,13,18,677

On the other hand, a monthly contribution of Rs 1.25 lakh in fixed income instruments, assuming a post-tax return of 5.33 per cent, would create a corpus of Rs 1.94 crore in 10 years. Thus, the total monthly contribution required for creating the Rs 10 crore portfolio would be about Rs 4.75 lakh per month.

Naveen Kukreja says that investors can split their equity SIP contributions equally between large-cap funds, flexi-cap funds, and multi-asset funds.

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He says investors can consider the direct plans of Parag Parikh Flexi Cap Fund and Quant Flexi Fund for the Flexicar category; ICICI Prudential Bluechip Fund and HDFC Top 100 Fund for the large-cap category; and Quant Multi Asset Fund or ICICI Prudential Multi-Asset Fund can be considered for the multi-asset category, he adds.

As the interest rate regime seems to have reached its peak, he suggests investors invest in long-duration debt funds for their fixed-income portfolio. They can consider the direct plans of SBI Long Duration Fund and HDFC Long Duration Fund.

As these funds have the longest maturity profiles, they generate higher returns than other debt fund categories during a falling interest rate regime, he adds.

However, the reverse would be true during a rising interest regime. Thus, once the investors detect the signs of the interest rate regime reaching the bottom, they should steadily shift their existing long-duration debt fund investments and fresh debt contributions to ultra-short-duration debt funds. They should prefer debt funds with the highest exposure to AAA-rated corporate bonds and sovereign and quasi-sovereign debt papers, he further said.  

Moreover, AR Hemant, AVP, BankBazaar.com, suggests asset classes with the potential for high returns in 10 years are the best bets to generate a Rs 10 crore corpus. Starting a valuable business is a good idea. Buying land in places with high potential is another idea. Aggressive stock market investing is another idea. If you prefer financial investments, mutual funds can help.

Also read--How you can get Rs 50,000 monthly pension through NPS investment; know calculations 

(Disclaimer: Investing in mutual funds is subject to market risks. Consult your advisor before making any investment.)