Starting the investment journey early in life and remaining invested for the long term are keys to getting maximum returns from mutual fund SIP. Especially when saving for retirement, starting early can do wonders to your corpus. While you may have read these statements multiple times till now, let’s look at what calculations show with the help of an example.
Assuming a 12% return, the calculation shows that a person would need to do a SIP of just Rs 8416 from the age of 20 to get Rs 10 crore on retirement at the age of 60.
The SIP amount required to reach the goal of Rs 10 crore will increase with age. For instance, if you start investing from the age of 25 then a SIP of Rs 15,396 would be required to get Rs 10 crore at the time of retirement.
If you further delay and start investing at the age of 30 then a SIP of Rs 28,329 would be required to reach the same goal of Rs 10 crore at retirement. At ages 35 and 40, the required SIP amount would jump to Rs 52,697 and Rs 1,00,085 respectively. (see chart below)
What to do with Rs 10 crore on retirement?
While Rs 10 crore seems to be a huge amount now, it may not be enough when you reach retirement age as inflation reduces the value of money over a period of time. (Read why).
Nevertheless, at the time of retirement, you will have multiple options to use the retirement corpus to generate a monthly cash flow for your needs. You may either keep the amount in a bank FD or purchase annuity schemes like LIC
The calculator on the LIC website shows that the purchase of the LIC New Jeevan Shanti plan for Rs 10 crore as of now would give over Rs 68 lakh as yearly annuity (or over Rs 5.6 lakh/month). This is subject to the condition that the annuity has been purchased for single life and with a deferment period of 1 year.
Points to keep in mind:
- Mutual Fund investments are subject to market risks. Therefore, actual returns may vary over a period of time.
- You should never invest in any scheme without taking advice from a professional financial advisor.
- The investment options available today may not be available at the time of your retirement. However, there may be different other schemes or plans at that time in which you can invest to generate a monthly cash flow.