The need to build an adequate retirement corpus is something that no prudent investor can afford. A clearly laid out retirement plan, supplemented by adequate corpus, empowers one to not only be financially independent and maintain a proper lifestyle without worrying about the post-retirement expenses, but also to maintain a reasonable lifestyle in the form of medical It is also capable of meeting unexpected expenses. Provide a hedge against inflation in case of emergency or just yourself. From an Indian perspective, it is also customary for heads of household to plan their retirement corpus in such a way that they leave behind some wealth as a posthumous inheritance. These arguments explain why the need for a large fund cannot be underestimated. Now that we have an endgame in our minds, we are better equipped to explore some avenues that can be explored to achieve the corpus of our dreams.
Before we proceed, it is essential that we consider an important point: inflation. If you are currently eyeing 8-figure funds, let’s say, 1 crore, are you sure it will last 15 years down the line? Simply put, no. Given the exponential rise in prices that has occurred over the years, a realistic assumption is that prices will continue to rise. With this concern addressed, let’s now understand what your portfolio should look like in order to achieve your goal. A traditional approach to this question is to first settle and settle your initial investment. If someone’s eye is on target A clear start can be achieved with a high initial investment of 10 crores, say, 25 lakhs. This happens because a person with a high initial capital has a higher margin in terms of required annual return than someone with a relatively low capital. Our prime objective now is to maximize these annual returns. A popular way to achieve this is through mutual fund schemes. There are few Indian Mutual Fund schemes that have consistently provided double digit annual returns to the investors. But choosing the right fund is important.
There is a SIP route for regular salary earners. A SIP or a Systematic Investment Plan is an opportunity that requires investors to set aside and invest a specified amount at regular intervals of time. These small investments, when taken as a whole, have the potential to add to one’s wealth rapidly. Investors are advised to gradually, yet continuously increase the amount offered for their SIPs. This allows them to start small, and still reach their goals through a gradual increase in the amount of investment. There are some general rules that can help in planning for the SIP route. One such rule is the rule 15-15-15, which basically means that if you continue with your monthly SIP 15,000 for 15 years, and the mutual fund scheme chosen by you is capable of generating an annual return of 15%, you will be able to accumulate a corpus of 1 crore at the end of 15 years. It is strongly advised not to keep investing in SIP stagnant and continuously increase the monthly SIP amount every year. For example, it will be much easier for you to reach the goal of 10 crore, by deploying a monthly SIP 1 lakh for 20 years at 12% return annually. However, not everyone is likely to have that kind of money just lying around. In such a scenario, one can start small, eg, 50,000 per month, and then increase the monthly SIP amount by 10% every year.
Investors may also consider a combination of the SIP approach and their initial corporation to speed up the entire process. Consider starting with an initial capital of 10 lakhs. Considering the effect of compounding on this amount, you can put approximately 10,000 every month for the next 20 years. Therefore, instead of setting aside 1 lakh per month, low monthly SIP 90,000 can help you reach your goal. Moreover, effectively contributing one’s annual bonus or any other windfall gains to retirement funds can go a long way in building a huge wealth corpus. The main obstacle which prevents people from collecting money as per their wish is lack of discipline. Compounding can work its magic only when investors commit to set aside the required amount as per their goals.
Anand K. Rathi is the founding partner and investment manager of Augment Capital Services LLP.
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