Retirement planning: How Rs 20,000 monthly SIP can create more than Rs 3.5 cr pool

Kolkata: Many of us consider SIPs to be sacrosanct. In other words, many think that if one begins an SIP on continues it as long as one can so do -- continue it for a very long time to maximise value since it harnesses the power of long-term compounding. However, that might not be the case always. There might situations where one can continue SIP for a few years and shift gears. Let's examine it in some detail.

This method of investing can be appropriate for wealth building in the long term. Therefore, one can think of this approach appropriate for retirement planning. The most significant point is that one can stop SIP after a few years when one might get the SIP amount free from the obligatory investment every month and channelize it elsewhere. Let's check the calculations.

Let's assume a 30-year old begins a monthly SIP of Rs 20,000 in a few mutual fund schemes. If this individual continues this investment for eight years, the value that will be generated will become approximately Rs 32,30,531. We have assumed a 12% average return on the schemes which is quite possible. Therefore, this is the SIP value that the individual comes to possess at the age of 38 years.

Now let's assume that the person stops the SIPs. he/she does not redeem the investments but switched the value as lumpsum investments in a few schemes and allows it to continue rise in value. By using a mutual fund lumpsum calculator, we find that if the investment continues for 22 years, the investment will balloon to Rs 3,87,20,992 or Rs 3.87 crore. The individual will be free to utilize this amount as he/she pleases when he/she becomes 60 years of age. if the money is left to multiply in value, the amount can certainly become higher. In this instance, too, we have assumed a 12% return on average for the 22 years.

Thus this combination of SIP and lump sum investments will allow the individual to easily run up an amount close to Rs 4 crore and achieve it without making any investments from his/her pocket for more than two-thirds of the time.

SIPs have become a preferred mode of investment for millions of common people in this country. This investment calculation shows that it is possible to do an SIP for a few years and then stop it, switch the investment to a lump sum mode and then leave it to multiply to a sizeable amount at the time of retirement. One can also follow it to create a significant pool of money which could be utilised at any point of time and not necessarily at the time of retirement.