Power of Compounding: In how years, can investor reach Rs 10 crore corpus through Rs 10,000, Rs 15,000, and Rs 20,000 monthly SIPs?
Power of Compounding: Can you reach the Rs 10 crore corpus from a Rs 10,000 monthly SIP investment? The one who begins investing early in their career can reach, but how soon? It will depend on the annualised return they get and the number of years they stay in their investment.
Power of Compounding: Power of compounding immensely helps long-term investors who are seeking a sizeable retirement corpus through consistent investing. But what is the long-term investment horizon here? A long-term investment can be considered a 5-7-year period. But is that sufficient to create a retirement fund? It is possible but not easy. If one wants to create a retirement corpus in just 5-7 years, their monthly or lump sum investment will be large. For a person depending on month-to-month paycheques, such a retirement investment will be a cumbersome task. Then what's the alternative? To begin early and invest for a long time! But again, how early and till how many years? Let's understand with examples and see how one can achieve a Rs 10 crore retirement corpus target with monthly SIP investments of Rs 10,000, Rs 15,000, and Rs 20,000.
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(Disclaimer: This is not investment advice. Do your own due diligence or consult an expert for retirement planning.)
Benefit of starting retirement planning early
The benefit of starting early to create a retirement corpus is that one can achieve the same target with a lower monthly investment compared to a person who starts late.
Rs 5 crore corpus through Rs 5,000 SIP and Rs 50,000 SIP
Let's take the example of a Rs 5 crore retirement corpus. A and B want to achieve the same. A can invest just Rs 5,000 a month, and B wants to achieve the same with a Rs 50,000 monthly investment. A is 20 years old and can wait till 60 to achieve the retirement corpus target. B is 40 and wants to create the corpus by 60. Both are expecting a 12 per cent annualised return each.
Rs 5 crore corpus through Rs 5,000 SIP and Rs 50,000 SIP
A can reach the target in approximately 39 years. Their investment during that period will be Rs 23,40,000, estimated capital gains will be Rs 5,03,28,385, and the estimated corpus will be Rs 5,26,68,385.
Rs 5 crore corpus through Rs 5,000 SIP and Rs 50,000 SIP
B can reach the same target in approximately 20 years. But their investment in those 20 years will be Rs 1,20,00,000, while the estimated corpus will be Rs 4,99,57,396. The huge gap between A and B's investments shows how the former benefitted because of a higher number of years of compound growth.
How Rs 7,000 SIP can generate higher fund than Rs 70,000 SIP
A and B want to create a corpus. A can invest Rs 7,000 a month, while B can invest Rs 70,000 a month. Both are expecting a 12 per cent annualised return each. A can invest for 35 years, while B can invest for 17 years. Both are expecting an over Rs 4.5 crore retirement corpus.
How Rs 7,000 SIP can generate higher fund than Rs 70,000 SIP
A's investment in 35 years will be Rs 29,40,000, while their estimated corpus will be Rs 4,54,66,883.
B's investment in 17 years will be Rs 1,42,80,000, and their estimated corpus will be Rs 4,67,54,458.
What we learn here
B is slightly ahead of A, but their investment amount is Rs 1,13,40,000 more for an extra corpus of just over Rs 13 lakh.
Calculations for story
For our story, we will take monthly SIP investments of Rs 10,000, Rs 15,000, and Rs 20,000. Annualised returns in each case will be 12 per cent and 13 per cent, respectively. The retirement corpus target will be Rs 10 crore.
Years to reach Rs 10 crore corpus from Rs 10,000 monthly SIP investment (At 12% return)
At a 12 per cent annualised return, the target can be achieved in an estimated 39 years.
The investment in 39 years will be Rs 46,80,000; estimated capital gains will be Rs 10,06,56,770, and the estimated corpus will be Rs 10,53,36,770.
Years to reach Rs 10 crore corpus from Rs 10,000 monthly SIP investment (At 13% return)
At a 13 per cent annualised return, the same target can be achieved in approximately 37 years.
The investment in 37 years will be Rs 44,40,000; the estimated capital gains will be Rs 10,62,20,652, and the estimated corpus will be Rs 11,06,60,652.
Years to reach Rs 10 crore corpus from Rs 15,000 monthly SIP investment (At 12% return)
A Rs 15,000 monthly SIP investment can take one to a Rs 10 crore corpus target in approximately 36 years.
In 36 years, the investment will be Rs 64,80,000; estimated capital gains will be Rs 10,34,97,616, and the estimated corpus will be Rs 10,99,77,616.
Years to reach Rs 10 crore corpus from Rs 15,000 monthly SIP investment (At 13% return)
In a little over 33 years, one can reach a Rs 10 crore corpus target from a Rs 15,000 monthly SIP investment.
In 34 years, the total investment will be Rs 61,20,000, estimated returns will be Rs 10,60,51,286, and the estimated corpus will be Rs 11,21,71,286.
Years to reach Rs 10 crore corpus from Rs 20,000 monthly SIP investment (At 12% return)
With a Rs 20,000 monthly SIP investment, one can reach a Rs 10 crore corpus in an estimated 33 years.
The investment in 33 years will be Rs 79,20,000, estimated returns will be Rs 9,39,59,962, and the estimated corpus will be Rs 10,18,79,962.
Years to reach Rs 10 crore corpus from Rs 20,000 monthly SIP investment (At 13% return)
At a 13 per cent annualised return, one can reach from Rs 20,000 monthly SIP investment to Rs 10 crore corpus in approximately 31 years.
The investment during that period will be Rs 74,40,000; estimated return will be Rs 9,34,34,384, and the estimated corpus will be Rs 10,08,74,384.