70:15:15 Investment Strategy: How can you build over Rs 10 crore retirement corpus with starting salary of Rs 25,000 using this formula ?
70:15:15 Investment Strategy: Whether you're a salaried employee, small business owner, or individual, it is crucial to build a retirement corpus. However, with inflation and daily expenses, many people feel that saving for retirement is nearly impossible. But with a disciplined and regular investment plan, anyone can build a substantial retirement corpus. One of the popular options is Systematic Investment Plan or SIP mutual funds where you contribute a fixed amount regularly. It allows you to take advantage of the power of compounding and benefit from market growth over time.
So, if you want to invest in a mutual fund SIP while managing your daily expenses, the 70:15:15 Investment Strategy could be a great option for you. This strategy divides your income into three parts, ensuring you can cover your expenses, build an emergency fund, and invest for the future— all while staying within your salary.
(Disclaimer: This is not investment advice. Calculations are projections. Please do your own due diligence or consult an advisor for retirement planning.)
What is 70:15:15 Investment Strategy?
According to the 70:15:15 SIP Investment formula, you must allocate 70 per cent of your salary for daily living expenses. 15 per cent should be set aside for an emergency fund, and the remaining 15 per cent should be invested in a SIP each month. To clarify how this investment strategy works, let's understand it with an example.
70:15:15 SIP Investment: How does the formula work?
Suppose your monthly income is Rs 25,000 and you apply the 70:15:15 investment formula. Now let's check how this works -
- 70% for Living Expenses: Rs 17,500 should be used for covering essential expenses.
- 15% for Emergency Fund: Set aside Rs 3,750 each month to build an emergency fund. This ensures you don’t need to dip into your investments during tough times.
- 15% for SIP Investments: The remaining Rs 3,750 should be invested in a SIP each month.
70:15:15 SIP Investment: Applying Step-Up SIP
Since your salary will increase each year, you can also increase your SIP investment annually. Let’s assume you’re investing in SIP for 25 years with a 10 per cent step-up each year.
Here's how you can build over Rs 10 crore retirement corpus with a starting salary of Rs 25,000:
70:15:15 Formula: Your total investment
If you invest Rs 3,750 every month with a 10 per cent increase in the amount each year then you will contribute a total of Rs 2,95,04,118 in 25 years.
70:15:15 Formula: Estimated Capital Gain at 12% Annualised Return
Based on an average annualised return of 12 per cent, your estimated capital gain over 25 years could be around Rs 7,73,84,535, calculations show.
70:15:15 Formula: Calculating the total amount received
This way, after 25 years, with a 12 per cent return and a 10 per cent annual increase in your SIP contribution, your total investment could grow to approximately Rs 10,68,88,653.
This includes both your invested amount and the estimated capital gain.
SIP Investment: Always Remember
It’s important to know that SIP is a market-linked scheme, so returns are not guaranteed. The 12 per cent return mentioned above is an estimate, and actual returns may vary depending on market conditions.
70:15:15 Formula: Calculating total investment if the return is 13%
For example, if your investments yield a 13 per cent return, your total could rise to Rs 12,28,33,026 after 25 years with a 10 per cent step up each year.
70:15:15 Formula: Calculating total investment if the return is 14%
Similarly, if your investments yield a 14 per cent return, your total could rise to Rs 14,18,34,908 after 25 years.
Benefits of SIP
Despite the market risks, SIP is often considered a good option for wealth creation because it benefits from rupee cost averaging, which helps mitigate losses. However, keep in mind the inherent risks of investing in SIP and plan accordingly.