How Rs 5,00,000 one-time investment can generate Rs 1,50,00,000 retirement corpus? Know here
One-time investment for retirement planning: People who are planning their retirement can invest one-time (lump sum) or monthly SIP. In the long term, either of the options can give stable returns.
Retirement Calculator, Power of Compounding: When we talk about retirement planning, we need to think from a long-term perspective, where we accumulate wealth step by step and withdraw it post-retirement. The long-term investment gives the benefit of compounding. A person who invests a small amount one time or in a systematic way can generate a substantial amount if they have a long-term investment horizon. Such a corpus can help one meet their retirement requirements. Let's see how a one-time investment can generate a sizeable corpus and how Rs 5,00,000 invested one time can generate a corpus of Rs 1,50,00,000 in the long term.
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(Disclaimer: This is not investment advice. Do your own due diligence or consult an expert for financial planning.)
Why one should create a retirement corpus?
One needs to meet post retirement expenses, for which they need a substantial amount. The amount should not end completely for their expected life. They can create that corpus by investing an amount or creating income sources.
What can be investments for retirement planning?
One can select market- or non-market-linked investment options to create a corpus. Market-linked options can be equity and mutual funds, while non-market-linked options can be fixed income options such as fixed deposits.
What are one-time and monthly investment options?
A one-time investment is where you deposit a sum once and get the maturity amount either on maturity or periodically. Mutual fund lump sum is a one-time investment.
What are one-time and monthly investment options?
On the other hand, a monthly investment is where you invest a fixed amount every month and get the return on maturity or in phases. SIP in mutual funds is an example of a monthly investment.
How can one create a corpus from one-time and monthly investments?
Let's take the example of investing Rs 10,000 monthly through SIPs and Rs 2,50,000 as a lump sum for 25 years. We are taking 25 years as the duration because we are creating a corpus for retirement. We are expecting a 12 per cent annualised return in each case.
Corpus from SIP and lump sum investments
In SIP investment, the total investment in 25 years will be Rs 30,00,000, expected capital gains will be Rs 1,59,76,351, and the estimated corpus will be Rs 1,89,76,351.
In the lump sum investment, the estimated capital gains will be Rs 40,00,016, and the estimated corpus will be Rs 42,50,016.
Corpus from SIP and lump sum investments
Just to see the impact of compounding on long-term growth, let's see what will happen if one stretches their investment to 30 years.
The estimated SIP investment will grow to Rs 3,52,99,138.
The estimated lump sum investment will grow to Rs 74,89,981.
How Rs 5 lakh investment can create Rs 1.5 crore corpus?
We will calculate the investment at a 12 per cent annualised return in a mutual fund.
The estimated time to create a Rs 1.50 crore corpus from a Rs 5 lakh lump sum investment will be 30 years. Let's see how the corpus will grow in different phases.
How Rs 5 lakh investment can create Rs 1.5 crore corpus?
In 10 years, estimated capital gains will be Rs 10,52,924, and the estimated corpus will be Rs 15,52,924.
In 20 years, estimated capital gains will be Rs 43,23,147, and the estimated corpus will be Rs 48,23,147.
Corpus in 30 years
In 30 years, estimated capital gains will be Rs 1,44,79,961, and the estimated corpus will be Rs 1,49,79,961.
Corpus by 55 years of age
Even if a person invests Rs 5 lakh at 25 years of age, they can create a Rs 1.50 crore corpus by 55 years of age.
Retirement corpus in 30 years
What if the same person continues this investment till 60? Estimated capital gains will be Rs 2,58,99,810, and the estimated corpus will be Rs 2,63,99,810.
Power of compounding
This happens because of the power of compounding, due to which the corpus grows faster with time.