Power of Compounding: How you can generate Rs 7.65 crore corpus if your monthly salary is Rs 25,000; know here
Power of Compounding: A low monthly salary won't be a roadblock in creating a huge retirement corpus if one is consistent in their investing and increases their investment amount with a rise in their income.
Power of Compounding: From Rs 1,000 monthly SIP investment to Rs 1,18,82,420 corpus; from Rs 5,000 monthly SIP investment to Rs 5,94,12,101 corpus; and from Rs 10,000 monthly SIP investment to Rs 11,88,24,202 corpus! These may appear to be mismatched pairs having nothing in common. At one end is a small monthly SIP amount; on the other end is a large corpus. But that's not the common thing between them. They are rational figures, and what makes them common is they are outcomes of a 12 per cent annualised investment return for 40 years. All these corpuses are achievable if an investor has two things in common: a long investment horizon and patience. The power of compounding rewards investors who have these 2 qualities. Cashing in on these 2 traits, a large corpus can be generated from a small monthly investment. Let's have a fair idea about it with a few examples and see how a person with a monthly salary of Rs 25,000 can create corpuses worth Rs 7.65 crore, Rs 6.54 crore, and Rs 5.43 crore, respectively.
Photos: Unsplash/Pixabay
(Disclaimer: This is not investment advice. Do your own due diligence or consult an expert for retirement planning.)
How much should one save to invest?
One can save and invest as per their financial goals or income, but as a benchmark, they can save 20 per cent of their monthly income and invest.
How small amount salary can create a large corpus?
One can start from anywhere, but they need to work on their skills to increase their income every year. As their income rises, they should also increase their investment amount. Other necessary factors to create a huge corpus are to get above-inflation post tax returns, and stick to the investment for a long term.
Example of Rs 2 crore corpus from Rs 10,000 monthly salary
We assume that one will invest 20 per cent of their salary. So, in this case it will be Rs 2,000.
If Rs 2,000 is invested in a scheme where the investor gets a 12 per cent annualised return. They can achieve the goal of a Rs 2 crore corpus in 39 years. But if 39 years seems to be too much for you, let's see in how many years it can be achieved through a step up SIP.
Example of Rs 2 crore corpus from Rs 10,000 monthly salary
If you step up a Rs 2,000 monthly SIP investment by 5 per cent every year, the target of a Rs 2 crore corpus can be achieved in approximately 35 years.
If the step up percentage is 10 per cent, the target can be achieved in approximately 31 years.
Impact of compounding
The power of compounding makes it possible. The longer they remain invested, the faster their corpus grows because of compound returns.
Example of Rs 10 crore corpus from Rs 20,000 monthly salary
In this case, an investor needs to invest Rs 4,000 monthly in a SIP and boost the amount by 8 per cent every year.
Example of Rs 10 crore corpus from Rs 20,000 monthly salary
They can reach a Rs 10 crore target in approximately 40 years.
But if they boost their SIP by 10 per cent every year, they can achieve the goal in approximately 38 years.
Calculations for story
For our story, we will take the example of a person with a Rs 25,000 salary. We will show that by investing 20 per cent of the salary every month, in how many years can they create worth Rs 5.43 crore, Rs 6.54 crore, and Rs 7.65 crore corpuses?
Annualised return and step up SIP percentage
The annualised rate of return will be 12 per cent in each case, and they need to step up their SIP by 5 per cent every year.
How to create Rs 5.43 crore corpus from Rs 25,000 monthly salary
If an investor invests Rs 5,000 a month through SIP and gets a 12 per cent annualised return, they can achieve this target in approximately 39 years and 5 months.
During that period, their investment will be Rs 23.65 lakh, and the estimated corpus will be Rs 5.54 crore.
How to create Rs 5.43 crore corpus from Rs 25,000 monthly salary
But if they step up their SIP by 5 per cent every year, they can achieve this target in an estimated 35 years and 9 months.
During that period, the total investment will be Rs 56,67,882, estimated capital gains will be Rs 4,85,72,570, and the estimated corpus will be Rs 5,42,40,452.
How to create Rs 6.54 crore corpus from Rs 25,000 monthly salary
The target can be achieved in an estimated 37 years and 3 months.
The total investment during that period will be Rs 61,89,387; estimated capital gains will be Rs 5,92,57,792, and the estimated corpus will be Rs 6,54,47,179.
How to create Rs 7.65 crore corpus from Rs 20,000 monthly salary
An investor who starts with a Rs 5,000 monthly SIP investment and steps up the amount by 5 per cent every year can achieve the Rs 7.65 crore corpus target in 38 years and 6 months.
How to create Rs 7.65 crore corpus from Rs 20,000 monthly salary
The investment during that period will be Rs 66,54,642, estimated capital gains will be Rs 6,98,26,342, and the estimated corpus will be Rs 7,64,80,984.