Power of Compounding: In how many years, investors can achieve Rs 6.5 cr corpus with monthly salaries of Rs 20,000, Rs 25,000, and Rs 30,000?
Power of Compounding in Retirement Planning: Saving some amount from your monthly salary and investing it in a scheme, such as a mutual fund SIP, where you get compound growth, may help you build a sizeable corpus that can fulfil your future financial needs.
Power of Compounding in Retirement Planning Building: Saving monthly from a salary of Rs 20,000 and investing it to build a Rs 6.5 crore corpus sounds uneasy. But it may not be tough if one begins early and increases their investment amount as their salary rises. A person's earnings are not constant; they increase with time, and the investor can take the benefit of that situation to achieve the target of a large retirement corpus. Know how investors with monthly salaries of Rs 20,000, Rs 25,000, and Rs 30,000 can achieve the financial goal of a Rs 6.5 crore retirement corpus.
Photos: Unsplash/Pixabay
How starting early benefits
The benefit of starting an investment early in age helps one reach a financial goal with a smaller amount compared to a person who begins their investment journey late. Let's understand it with two examples.
Example of power of compounding
A 20-year-old person starts their investment journey with a Rs 6,000 monthly SIP investment. They want to keep their monthly investment amount the same for 40 years and retire at 60. They are expecting a 12 per cent annualised return on that. In 40 years, a mere Rs 6,000 monthly SIP investment can lead them to an estimated retirement corpus of Rs 7,12,94,521.
Example of power of compounding
In the second case, a 40-year-old person also wants to create a similar retirement corpus in the next 20 years. They are also expecting a 12 per cent annualised return and want to retire at 60. To reach the same target, their estimated monthly investment should be Rs 71,500.
A 20-year period of extra compounding makes the 20-year-old's journey easy to achieve the same retirement corpus goal.
Calculations for story
For our story, we will take the examples of 25-year-olds who have monthly salaries of Rs 20,000, Rs 25,000, and Rs 30,000, respectively. Each will invest 20 per cent amount of their salary. It means the monthly SIP investment will be Rs 4,000, Rs 5,000, and Rs 6,000, respectively. The annualised return in each case will be 13 per cent.
Calculations for story
The retirement corpus target is Rs 6.50 crore in each case. We will take 2 situations. In the first situation, the investment amount will remain the same throughout the investment period. In the second situation, we will step up the investment amount by 5 per cent each year.
From Rs 4,000 monthly SIP to Rs 6.50 crore corpus
It will take approximately 40 years to achieve the target of a Rs 6.50 crore retirement corpus goal.
In 40 years, the investment amount will be Rs 19,20,000, estimated capital gains will be Rs 6,34,97,354.97, and the estimated corpus will be Rs 6,54,17,354.97.
From Rs 4,000 monthly step up SIP to Rs 6.50 crore corpus
It will take an estimated 37 years to achieve the same target.
In 37 years, the investment will be Rs 48,78,151, estimated capital gains will be Rs 6,15,53,260, and the estimated retirement corpus will be Rs 6,64,31,411.
From Rs 5,000 monthly SIP to Rs 6.50 crore corpus
It will take a little over 38 years to achieve the retirement corpus goal of Rs 6.50 crore.
In 39 years, the investment amount will be Rs 23,40,000, estimated capital gains will be Rs 6,94,56,980.82, and the estimated corpus will be Rs 7,17,96,980.82.
From Rs 5,000 monthly step up SIP to Rs 6.50 crore corpus
It will take an estimated little over 35 years to achieve the target of the Rs 6.50 crore retirement target.
In 36 years, the investment will be Rs 57,50,179, estimated capital gains will be Rs 6,68,89,475, and the estimated retirement corpus will be Rs 7,26,39,654.
From Rs 6,000 monthly SIP to Rs 6.50 crore corpus
It will take an estimated 37 years to achieve a Rs 6.50 crore retirement corpus.
In 37 years, the investment amount will be Rs 26,64,000, estimated capital gains will be Rs 6,37,32,390.94, and the estimated corpus will be Rs 6,63,96,390.94.
From Rs 6,000 monthly step up SIP to Rs 6.50 crore corpus
It will take an estimated 34 years to achieve the target of the Rs 6.50 crore retirement target.
In 34 years, the invested amount will be Rs 61,24,821, estimated capital gains will be Rs 6,04,94,074, and the estimated retirement corpus will be Rs 6,66,18,895.
Disclaimer
This is not investment advice. Do your due diligence or consult an expert for financial planning.