Retirement Planning, power of compounding: Everyone dreams of having a large corpus that not only helps them achieve their financial goals but can also help them live a luxurious life.
But for a person who wants to achieve it on their own through investments, the journey can be tedious, full of ups and downs, where patience may test them every now and then.
But if they stick to their investments for a long time, the end result can be highly fruitful, a true gift for staying patient in the whirlwind of investment fluctuations.
In the long term, even a one-time investment of Rs 2,50,000 can reach an Rs 8,400,000 corpus goal.
But how may it be possible?
Let’s know the importance of having a large retirement corpus, why patience is the key to achieving it, and how many years a small one-time investment can generate a corpus over 31 times more than the investment.
Importance of having a large corpus
A person may have many financial goals, such as buying a car, home, vacation, marriage, or child education. For everything, they may need a sizeable corpus, for which having a large corpus can come handy.
Corpus through investment
Many of us may not have a sizeable corpus, and we may need to build it.
There can be different ways to build it, and investment is one of the prominent ways. One can invest monthly, one time, or as per their earning cycle, but long-term consistency in investment can take their corpus to dizzying heights.
Beating inflation is necessary
Prices of things rise with time.
A thing that costs Rs 100 today will most likely cost more the next year.
So, if you have a financial goal for 10 years, you need to calculate the amount required at that time.
Since investment can grow with time, it can be an effective way of beating inflation.
Starting to invest early matters
A person who is starting their investment journey early in their life can create a significantly higher corpus compared to a late starter.
Let’s see a couple of examples.
A and B start their journey with a Rs 15,000 monthly SIP, where both are expecting a 12 per cent annualised return. A wants to invest it for 25 years and B for 30 years.
A’s investment in 25 years will be Rs 45,00,000, and the expected amount will be Rs 2,55,33,099, while B’s investment in 30 years will be Rs 54,00,000, and the expected corpus will be Rs 4,62,14,598.
Just in 5 years, with a few lakh extra investment, B can create a corpus over Rs 2 crore more than what A can create.
In another example, A and B have Rs 5 lakh lump sum each. Both want to invest it in a scheme where they expect a 12 per cent annualised return each. A has a 30-year investment horizon, while B has 35 years.
A’s estimated corpus in 30 years will be Rs 1,49,79,961, while B’s estimated corpus in 35 years will be Rs 2,63,99,810.
Both examples show the importance of starting early and staying in investments for a long time.
From Rs 2,50,000 investment to Rs 84,00,000 corpus
Here, we are calculating at a 12 per cent annualised return for a Rs 250,000 one-time investment.
Let’s see how this investment will grow in phases and in how many years it can reach the target of near Rs 84,00,000 corpus.
Corpus from Rs 2,50,000 one-time investment in 10 years
In 10 years, estimated capital gains will be Rs 5,26,462, and the estimated target will be Rs 7,76,462.
Corpus from Rs 2,50,000 one-time investment in 20 years
In 20 years, estimated capital gains will be Rs 21,61,573, and the estimated target will be Rs 24,11,573.
Corpus from Rs 2,50,000 one-time investment in 30 years
In 30 years, estimated capital gains will be Rs 72,39,981, and the estimated target will be Rs 74,89,981.
Corpus from Rs 2,50,000 one-time investment in 31 years
In 31 years, estimated capital gains will be Rs 81,38,778, and the estimated target will be Rs 83,88,778.
Power of compounding
Investments offering compound returns grow faster with time. So, in the example above, you can see that the corpus rises faster in every phase. From 30th to 31st year, the estimated corpus rise is Rs 8,98,797.
