Financial freedom by 50 with modest salary: In the salaried class, it is common to see people spending their early career years primarily to meet immediate needs and other responsibilities. Retirement planning often takes a backseat during this period. For some, the starting salary is simply not sufficient to cover both their day-to-day obligations and long-term savings. However, the real worry begins as age advances.
Consider the case of Rakesh (a fictitious name). At 35, he began feeling the stress of retirement planning. Until then, he had made little to no provisions for the future, and the thought of post-retirement life was unsettling. Initially, he set a goal of accumulating a corpus of ₹50 lakh by the time he turned 50—essentially giving himself 15 years to achieve it.
But when a financial advisor explained the impact of inflation, the picture changed. With an assumed annual inflation rate of 5%, ₹50 lakh in 15 years would have a real value of only around ₹30–35 lakh in today’s terms. Realizing this, Rakesh revised his target, raising it to ₹75 lakh to ensure a comfortable retirement.
Rakesh’s story is not unique. It serves as a wake-up call for many salaried professionals: delaying retirement planning can compound the challenge, and accounting for inflation is essential for realistic goal-setting. The earlier one starts, the easier it becomes to bridge the gap between aspirations and reality.
SIP: The best strategy for the average salaried individual
Once the target was set, the financial advisor suggested building an equity portfolio. Like many others, Rakesh initially thought that investing in equities was only for high-salary earners. However, the truth is quite different.
Even an average salaried individual can build a portfolio of ₹75 lakh by the age of 50. The key lies in understanding the power of a Systematic Investment Plan (SIP), along with the benefits of timing and compounding. With consistent contributions and patience, even modest salaries can grow into substantial retirement funds over time.
How to achieve the target in 15 years
If your goal is to accumulate ₹75 lakh in 15 years through a SIP, it is essential to determine two things: your monthly SIP budget and the rate of return required on that investment.
Assuming an average salary, let’s say by the age of 35, you are able to invest ₹10,000 per month in a SIP. To reach ₹75 lakh in 15 years with this contribution, you would need a minimum CAGR of around 17%.
You can easily verify this using a SIP calculator available on most investment platforms.
In simple terms:
₹10,000 per month × 15 years × 18% annual return ≈ ₹75 lakh
This means that even with a modest salary, consistent investing can help you build a substantial asset base over time.
But where will you get such returns?
If you check the returns charts on platforms like Value Research, you’ll find several equity funds delivering 17% or higher annualized returns over 15 years. However, it’s important to take an advisor’s guidance while choosing a fund suitable for your level of risk. Past performance does not guarantee future results.
Still, when evaluating a fund, make sure to examine key parameters such as fund performance, expense ratio, Sharpe ratio, beta, standard deviation, total AUM, and ratings. Also, review the fund’s portfolio to understand which stocks have higher exposure. This will give you a clearer picture of the risk and potential of your investment.
Nippon India Small Cap Fund : 20.64%
SBI Small Cap Fund : 19.03%
Mirae Asset Large & Midcap Fund : 18.80%
Edelweiss Mid Cap Fund : 17.98%
HDFC Mid Cap Fund : 17.94%
Invesco India Mid cap Fund : 17.70%
Quant Small Cap Fund : 17.44%
ICICI Pru Technology Fund : 17.38%
Franklin Build India Fund : 17.16%
DSP Small Cap Fund : 17.03%
Franklin India Small Cap Fund : 17.02%
Canara Robeco Large and Mid Cap Fund : 17.00%
(Fund Returns Source: Value Research)
The magic of compounding
In the initial few years, your returns may seem modest. But as time passes, your returns start earning returns themselves, and after 5–7 years, your portfolio begins to grow rapidly. This is known as the compounding effect—when you remain disciplined, your money grows exponentially over time.
Why equity SIP is a better option
With an equity SIP, you don’t need to worry about market timing. You invest every month, regardless of whether the market is up or down.
Through Rupee Cost Averaging, when prices fall, you buy more units of your fund, effectively lowering your average purchase cost. Over the long term, equity SIPs have the potential to deliver high returns, typically around 15–18% annualized.
Smart tips for SIP investors
Start as early as possible: Avoid unnecessary delays. The longer you wait, the less you benefit from compounding.
Increase contributions over time: If your salary rises, top up your SIP amount by a fixed sum each year.
Stay invested for the long term: Maintain your SIP for at least 8–10 years.
Choose diversified funds: Opt for diversified equity funds or flexi-cap funds to ensure balanced growth.
Avoid premature withdrawals: Think long-term and resist the urge to exit your investment midway.
Remember Consistent discipline, smart fund selection, and patience are key to maximizing the power of SIPs.
Note: This article is for informational purposes only. Any fund mentioned is shown purely to illustrate historical returns. Past performance does not guarantee future results, and there is no assurance that these returns will continue. Investments in the market carry risks, so always consult an expert before making any investment decisions.