SIP: Starting with Rs 2K step-up SIP, how you can build Rs 2 cr retirement corpus

At young age, we hardly think about retirement planning. At that stage, we had energy, risk appetite and time to earn money. But as you grow old, income resources and job options decrease and you start thinking about retirement. But if you start investing late for your retirement, you may fall short of financial goals as investment duration plays a key role in building a sizeable retirement corpus. In investment schemes providing compound interest/returns, even a 10-year period can multiply your corpus many times.

So, if you invest Rs 5,000 in SIP for 20 years and get a 12 per cent annual return on your investment, your corpus of Rs 50 lakh will be much larger than the corpus of Rs 11.60 lakh that you would have got investing the same SIP amount for 10 years.

In today's write-up, we will discuss the 25/2/5/35 mutual fund investment strategy, where even if you start with a Rs 2,000 SIP and increased the SIP amount by five per cent every year, you can build a Rs 2 crore retirement corpus in the long term. Before that, know what is a step-up SIP?

What is a step-up SIP?

In a step-up SIP, you start a SIP and continue it for a year. After one year, you increase the amount at a certain percentage.

E.g., if you are starting with a Rs 3000 SIP and invest it for a year, and increasing it by 10 per cent every year, your SIP for the next year will be Rs 3,300. You will keep increasing it every year till you reach your investment goal or the retirement age.  

What is 25/2/5/35 formula?

This is a mutual fund investment strategy where you start investing at the age of 25.

You invest with a Rs 2,000 SIP every month and keep increasing SIP amount every year with a 5 per cent jump.

You continue this process for the next 35 years till you reach the retirement age of 60.

According to the 25/2/5/35 formula, you will have to start investing from the age of 25 years. 2 means start investing with a SIP of at least Rs 2000. 5 means increase the amount by 5 per cent every year, and 35 means, to continue this investment for 35 years. E.g., you start with a Rs 2,000 SIP at 25 years of age.

Since you increase 5 per cent amount every year, you will increase Rs 100 in SIP in the second year and your SIP will be Rs 2,100.

For the next year, there will be an addition of 5 per cent more and the SIP will be Rs 2,205.

How will you build Rs 2 crore corpus

According to the formula, if you continue investing for 35 years, according to step-up SIP calculator, you will invest a total amount of Rs 21,67,687.

You can expect an average return of 12 per cent on your mutual fund investment.

In such a situation, you will get long-term capital gains of Rs 1,77,71,532.

With that, your total corpus will be Rs 1,99,39,220 (around Rs 2 crore).

In this way, at the age of 60, you will have a retirement corpus of Rs 2 crore.

If you invest this money in a mutual fund providing a systematic withdrawal plan (SWP), you may easily get a over Rs 1 lakh monthly pension and you corpus will also not deplete.