Hello Readers!
Do you have your target set for retirement kitty? If yes, then what is your target? Do you have stratified your plan, to achieve that target? These are some questions, normally a person heading toward planning their retirement asks another person, and what they end at, is planning their retirement based on what investment approach others follow.
However, it is very common that just because you have a common goal post, the investment approach need not be similar to others. That means even the retirement kitty of you and your friend has the same value, both of your investment approaches would be different.
Suppose you have your retirement kitty to be built, calculated Rs 10 crore, then below is a brief on how you should plan your investment strategy to reach that corpus.
Time Horizon Plays A Key Role!
The very prominent factor that play the role in your corpus building is the time you set for it, that is when you plan to start and when you plan to end. If you are starting in your 30s, getting to Rs 10 crore requires relatively lesser investments than those in their 40s or 50s (see table below). That is because starting early helps you reap the benefits of the power of compounding.
A 30-year-old retiring at 65 will have effective 35 years in hand to create the corpus of Rs 10 crore that means his SIP installment per month will also be less than those who will start investing, when 40 years old ad will retire at 60 years of age. For them, they will have only 20 years in hand and obviously a big SIP amount per month to invest.
Asset Allocation, Second Big Factor!
The ability for you to reach your corpus of Rs 10 crore also depends on what kind of strategic asset allocation you will be following. Like, suppose you are 30 years old, and you have chosen to invest all for your retirement in Debt then, you would require around a monthly investment (or SIP) of Rs 27,050 till the age of 60, to create the corpus of Rs 10 crore.
And if you choose a hybrid fund that has an allocation plan, 60% in Equities and 40% in debt, then you would require around Rs 18,080 as a monthly installment per month till the age of 60 years to reach that corpus.
This monthly installment amount lowers a bit more when your portfolio is 100% Equity allocated. In that scenario, you would require around Rs 13,330, monthly to invest in mutual funds till the age of 60 years to achieve the corpus of Rs 10 crore.
Equity mutual funds are subject to volatility in the short-term but give a good return in the long-term. Also, an investor can keep their expectation high from these funds say 11% rate of returns as compared to those against 9% and 6% returns from a hybrid and pure debt portfolio respectively. In short, more the exposure to equities, the lesser is the SIP requirement.
Keep Your Income Expectation High!
As you grow old, your responsibilities increase, so your expenses increase, and your SIP for your retirement kitty is already there, So basically what is necessary here, that your income should also increase. Reaching your target corpus is not all about investing but maintain the consistency of your investment and for that, you must focus on building and growing a stable career.
Do Consider Your Existing Investments!
When you plan your retirement, investment does consider the retirement contribution from other investments, like bank deposits, PPF, or provident funds, no matter how small it is. For instance, a 50-year old might have an investment portfolio worth 10% of the target kitty or Rs 1 crore. He needs to figure out how much monthly investment is required to get from thereon. Since his existing investment will grow to nearly Rs 3 crore when he turns 60, if invested in equities, he needs to plan only for the rest (Rs 7 crore).
Conclusion!
Remember, you do not have to SAVE that big corpus of Rs 10 crore, rather you have to let your money grow to that big corpus and it can only be achieved by INVESTING THE RIGHT AMOUNT AT RIGHT PLACE FOR A RIGHT TIME PERIOD!
Also, mark me that your assets allocated in Equity will help you reach your corpus faster than the debt-oriented portfolios.
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For any kind of query you can contact us at Shri Ashutosh Securities Pvt Ltd., we are here to help you in any way possible.
Happy Investing!
(Mutual Fund investments are subject to market risk Illustrations are for example only, there is no guarantee of returns. Past performance is not an indicator/guarantee to future returns).