Save Rs 7 crore for retirement fund through mutual fund SIPs; here’s how   |  Photo Credit: BCCL
Systematic Investment Plans (SIPs) are the most popular among salaried individuals who prefer to invest a portion of their earnings no a periodic basis rather than putting a lump sum amount. SIPs also give the benefit of averaging to the investors so that they don’t get locked at a particular price point on their investments and rather spread out their returns over a period of time.
Wealth advisors say mutual fund SIPs return at least 10% over a long term horizon on investment. Small investors can use a mutual fund calculator to find out their post-retirement income through SIP investments. Many people save for their to accumulate money so that they don’t have to work in their old age. A family which sends Rs 40,000-Rs 45,000 per month currently will need around Rs 3 lakh per month after factoring in inflation. SIP route can be taken to accumulate post-retirement corpus by investing for long term.
Taking into account 6-6.5% inflation, a household expenditure of Rs 40,000-Rs 45,000 now will turn into Rs 3 lakh in a few decades from now. So investors should target this monthly while saving for their future.
Taking into account a life expectancy of 25 years and inflation of 6%, an individual needs around Rs 7.2 crore corpus in order to generate Rs 3 lakh per month income after retirement, say experts. For this, an investor needs to invest Rs 7.2 crore in a Systematic Withdrawal Plan (SWP) where they would get 8% return, which is 2% higher than the annual inflation rate of 6%.
For someone who begins investing at 30 years of age has at least 30 years to save and plan for retirement. However, the beginning monthly SIP of such an investor shouldn’t be same as the last SIP instalment as income is liable to growth as time passes. An investor should at least increase their SIP by 10% annually to reach the goal sooner.
Account for taxation
A major threat to one’s investments is income tax, which also needs to be accounted for while planning for retirement. Investors can expect 12% overall returns or 10% post tax returns after investing for a period of 30 years in SIPs.
Assuming an overall return of 12% or 10% post-tax returns on a monthly SIP for 30 years, step up mutual fund SIP calculator indicates one needs to create a corpus of 9.61 crore which would become Rs 7.61 crore after tax.
According to mutual fund calculator, one needs to start an SIP of Rs 12,000 per month to meet this monthly income of Rs 3 lakh per annum in the next 30 years.