SIP calculator calculation retirement planning investment delay may downsize corpus mutual fund capital gains
Market gurus often tell us to start investing early. When we start investing early, we get more time to grow our wealth than the one who starts late. Another advantage is that even if you invest in market-linked investment, where market goes through fluctuations, you may get sufficient time to overcome those downfalls. Another important thing that happens when you start early is that you get a chance to build a huge retirement corpus even if you invest a small monthly amount than the one whose monthly investment is double than yours but whose investment duration is shorter. It becomes possible in schemes offering compound growth.
E.g. if two investors, one with Rs 5,000 monthly and another with Rs 10,000 a month, invest in a market-linked programme such as mutual fund through the systematic investment plan (SIP) and get a 12 per cent annual return on their investments, then the one with Rs 5,000 SIP can accumulate more wealth despite investing the less money than the one with Rs 10,000 a month investment. Know how
If one starts a SIP of Rs 5,000, invest their money for 15 years and get a 12 per cent return, then in 15 years, they will invest Rs 900,000, their long-term capital gains will be Rs 16,22,880 and the expected amount will be Rs 25,22,880.
If one starts a SIP of Rs 10,000, invest it for 10 years and get a 12 per cent return on it, then their investment in those years will be Rs 12,00,000, long-term capital gains will be Rs 11,23,391 and the expected amount will be Rs 23,23,391.
Here, it is clear that the one with the Rs 5,000 is a clear winner despite investing Rs 300,000 less because they invested for six more years than the one with a Rs 10,000 SIP. In those six extra years, they got compound growth that helped them pip the another investor.
Had the one with a Rs 10,000 SIP would have invested for six more years, their investment would have been Rs 19,20,000, but their expected amount would have been Rs 58,13,782.
How early starters can have edge over late starter in building more retirement fund
When you aim to create a retirement fund, an investment time frame can be anywhere between 20 to 30 years.
Here, we take investor A who starts investing at 35 and invests for 20 years. Investor B starts investing at 25 years of age and wants to invest for 30 years.
Here, investor A invests Rs 20,000 in an SIP for 20 years and investor B invests Rs 10,000 through SIP for 30 years.
Both get 12 annual return on their investments for their respective investment durations.
Here’s what will be their retirement corpus on completion of their investments-
Investor A will invest Rs 48,00,000 in 20 years, their long-term capital gains will be Rs 1,51,82,958 and the total amount will be Rs 1,99,82,958 (approx. Rs 2 crore).
Investor B will invest Rs 36,00,000 in 30 years, their long-term capital gains will be 3,16,99,138 ad their expected amount will be Rs 3,52,99,138 (Rs 3.53 crore).
Now what if investor B also starts with Rs 20,000 SIP and invest it for 30 years, there investment will be Rs 72,00,000, long-term capital gains will be Rs 6,33,98,275 and the expected amount will be Rs 7,05,98,275.