Retirement Planning: In how many years, a 25-year-old can create Rs 4 crore corpus with Rs 10,000 step up SIP investment?
Often starting to invest early can help one achieve the required goal earlier and with a lesser amount compared to a late starter. Similarly, starting to invest at 25 can help one build an over Rs 4 crore retirement corpus with a Rs 10,000 step up SIP investment.
When it comes to retirement planning, starting early is the secret to building a sizeable corpus that can support you financially post retirement. With the power of compounding turning a monthly step up SIP investment of Rs 10,000 into Rs 4 crore can be possible for a 25-year-old. But the question is how it can be done.
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(Disclaimer: Our calculations are projections and not investment advice. Do your due diligence or consult an expert for financial planning)
What is step-up SIP?
Step-up SIP is a method of investing in a mutual fund through a systematic investment plan, where an investor can increase their investment amount at regular intervals, either periodically or annually (6 months or 12 months) by a fixed amount or percentage.
Power of compounding
The power of compounding is a process to generate earnings not only on the principal amount but also on the accumulated growth. When it comes to investing, the earlier you start, the higher corpus you can generate with a lower amount compared to a person with a higher investment amount and a lower duration.
How step-up SIP work?
Step-up SIP allows the investors to automatically raise their SIP amount in a selected time interval. For example, if an investor starts with a monthly investment of Rs 10,000 and sets an annual step-up of 5 per cent for a review period of 12 months, their SIP investment will increase to Rs 10,500 for the next investment cycle. This will keep repeating till they continue their investment.
How step-up SIP is useful for retirement planning?
It can help one create their retirement corpus before reaching the retirement age (in case one starts early).
What are the benefits of step-up SIP?
Flexibility - one can adjust their investment levels according to their changing financial situation.
Disciplined savings - one can use a step-up SIP to help achieve their financial goals faster.
Why is it important to start investing early?
Starting early gives your investments more time to grow, benefiting from the power of compounding.
Example of why investing early is important
Two individuals aim for Rs 4 crore corpus with a monthly investment of Rs 10,000 at a 12 per cent annual return and 5 per cent step-up. If one starts investing at the age of 25, and the other starts at 35. The one who started earlier (at 25) will be able to achieve their target by the age of 53. The one who started investing at the age of 35, will be able to achieve the target corpus by the age of 63. (Note: Here, we are talking in terms of step-up SIP)
At what age you will reach your target corpus if starting to invest at 25
If one starts investing Rs 10,000 in monthly step-up SIP at the age of 25, by the time they reach 53, they can accumulate a retirement corpus of Rs 4 crore.
Step-up SIP: Calculation conditions
Monthly step-up SIP: Rs 10,000
Start age: 25 years
Investment duration: 28 years (from age of 25 to 53)
Expected annualised return: 12 per cent
Expected annal step-up: 5 per cent
Step-up SIP: What will be your corpus in 20 years with Rs 10,000 monthly SIP?
The estimated corpus will be Rs 1,37,37,623. During that time, the invested amount will be nearly Rs 39,67,914, and the estimated capital capital gains will be Rs 97,69,709.
(Note: Here, we did the calculation on 5 per cent annual step-up and 12 per cent annualised return)