In today’s time, SIP i.e. Systematic Investment Plan has become the easiest way to invest gradually. Many people are creating a big fund in the long run by investing small amounts every month. If your goal is to have a retirement fund of Rs 1 crore by the age of 60, then it is important to know at what age you are starting. The real game is not of money, but of time.
Suppose you start investing at the age of 25 and keep investing continuously for 60 years. That means you have full 35 years. If an average annual return is 15 percent, then even a monthly SIP of around Rs 1,000 can create a fund of more than Rs 1 crore. The thing to understand here is that the money invested from your pocket in such a big fund is very less, the rest is done by compounding. The longer the time period, the more the returns add up. Therefore, those who start early can get big benefits even from a small amount.
This much fund will be created in the beginning in 30 years
Now suppose you started investing at the age of 30. Now you have only 30 years left. The difference increases significantly with a delay of just 5 years. In such a situation, you may have to do SIP of around Rs 2,000 per month so that around Rs 1 crore can be raised by the age of 60 years. This example shows how important the role of time is in investing. The more you delay, the more your monthly investment will have to increase. So the rule of now or never proves true here.
Started investment in 40 years
If a person starts investing at the age of 40, he has only 20 years left. In such a situation, to achieve the target of Rs 1 crore, one may have to invest around Rs 7,500 every month, provided an average return of 15 percent is obtained. It is clearly visible here that as time decreases, the investment amount increases manifold. The return estimate remains the same, but as time reduces the target becomes difficult.
Late start? Step-up SIP can help
Not everyone gets the opportunity to invest in the initial stages of their career. Responsibilities, low salary or family needs may come in the way. If you start at the age of 45, one way is to start with a higher amount and increase it a little every year. For example, if one starts with Rs 10,000 per month and increases the SIP by 10 per cent every year, a corpus of around Rs 1 crore can be created in 15 years, provided the average return is 15 per cent. This is called Step-up SIP and it can be an effective way to achieve your goals in a short time.
Why is SIP considered an easy way?
The biggest feature of SIP is discipline. The money gets invested automatically every month on the fixed date. This reduces the fear of market boom and recession. The second thing is rupee cost averaging. When the market falls, you get more units and when the market rises, you get less. This keeps the average cost balanced. The third power is compounding. This compounding turns your small investment into a big fund in the long run.
Understand the reality of returns also
It is important to remember that 15 percent return is not a guarantee. There are ups and downs in the market. Sometimes returns may be more, sometimes less. Therefore, before investing, understand your risk appetite and if needed, take the help of an advisor. Also, as retirement approaches, it makes sense to gradually shift some money to safer options.
Also read- America gave a blow to solar energy, imposed 126% tax on India