SIP for Retirement Planning: Systematic Investment Plan (SIP) is an effective strategy for retirement planning.
Many investors invest a small monthly amount through SIP in mutual funds due to their monthly earning cycle.
The steady growth for a long term can create a large corpus with a small overall amount due to the power of compounding.
But committing to a long-term investment is not easy as it also depends on whether you have a steady income for the long term.
One may lose an income source because of a layoff or other reasons.
In such a way, the flow of investment may also discontinue.
However, one may create a sizeable retirement corpus if they invest Rs 15,000 monthly in an SIP for 5 years and let their corpus grow for a long term. Know how it may be possible.
What is SIP investment?
In an SIP investment, one can invest daily, weekly, monthly, quarterly, semi-annually, or annually. It may depend on their income cycle.
How SIP investment grows
SIP investment grows because of compound growth, where an investor gets returns on their growth as well as principal. But an SIP investment is best suited for investors with a long-term investment horizon.
How power of compounding helps SIP investors
SIP investment grows over time.
A small monthly investment such as Rs 3,000 can create a corpus worth crores.
E.g., if one invests Rs 3,000 monthly through SIP and gets 12 per cent annualised growth, they can create over Rs 1.62 crore corpus with just Rs 12,60,000 investment in 35 years.
If they stay for 5 more years in their investment, their estimated corpus can reach over Rs 2.93 crore.
How Rs 15,000 monthly SIP investment can create Rs 2.97 cr corpus
Such an investment will grow in 2 stages. In the first stage, an investor will make an SIP investment for 5 years. For the next 25 years, they won’t contribute anything and let this corpus grow.
Corpus from Rs 15,000 monthly SIP investment for 5 years
In 5 years, the total investment will be Rs 9,00,000, the estimated capital gains will be Rs 3,16,554, and the estimated corpus will be Rs 12,16,554.
How it may grow to Rs 2.07 crore
At this stage, one doesn’t need to make a fresh investment and let the corpus grow for 25 years.
At 12 per cent annualised growth for 25 years, estimated capital gains will be Rs 1,94,64,942 and the estimated corpus will be Rs 2,06,81,496.
What if one continues Rs 15,000 monthly SIP investment for 25 years
If one continues their Rs 15,000 monthly SIP investment for 25 years after doing it for 5 years and gets a 12 per cent annualised growth on that.
In 30 years, the total investment will be Rs 54,00,000, the estimated capital gains will be 4,08,14,598 and the estimated corpus will be Rs 4,62,14,598.
Slow and steady wins the race
The mantra to create a large retirement corpus is to begin the investment journey early so that you have enough time to benefit from the power of compounding and let your investment grow.
(Disclaimer: This is not investment advice. Do your own due diligence or consult an expert for financial planning.)
