Mutual fund calculator: The difference between a normal investor and a smart investor lies in small puns. For example, a normal investor starts investing in equity mutual funds in a Systematic Investment Plan (SIP) mode for the long term with a fixed amount. But a smart investor would increase their monthly SIP amount with each annual salary increase, using the annual step-up trick. This single trick makes a huge difference in one’s retirement savings, enabling an investor to pre-pone retirement. Looking at the job opportunities available after globalisation, many professionals are starting their investments at 25. However, when you start your career so early, you want to retire ahead of the normal retirement age.
According to a tax and investment expert, an investor can plan to retire at 45 by investing in a mutual fund SIP in a monthly mode, accumulating a retirement corpus of ₹3,64,92,972, or say ₹3.65 crore, from a single investment instrument — a mutual fund monthly SIP. To achieve this maturity amount by the time the 25-year-old investor turns 45, they need to increase their monthly SIP by 15%. However, after retiring at 45, they need to do an extra pun by investing the entire amount in the Systematic Withdrawal Plan, which offers around 7% returns to investors, enabling them to beat annual inflation.
According to the mutual fund calculator used in this calculation, if an investor starts a monthly mutual fund SIP of ₹9,000 for 20 years, using a 15% annual SIP step-up for the entire period and expecting a 15% annual return, the investor would accumulate around ₹3,64,92,972 or ₹3.65 crore at the time of retirement. Then, expecting a 7% return on one’s SWP, if the investor invests ₹3.65 crore in a SWP plan, they can get a monthly pension of ₹2 lakh and a contingency fund of ₹6,73,41,557 or ₹6.73 crore for any medical emergency.
How does SIP step-up impact your maturity amount?
Speaking on how a smart investor accumulates much more than a normal equity mutual fund investor, Pankaj Mathpal, CEO & MD at Optima Money Managers, said, “Equity mutual funds offer a monthly SIP with an annual step-up offer. However, a few people choose an annual step-up. This leads to almost half of the amount which they could have accumulated by opting for the annual step-up.”
On how much annual SIP step-up an investor can opt for, SEBI-registered tax and investment expert Jitendra Solanki said, “In normal conditions, an investor takes a 10% annual SIP step-up. However, if someone wants to retire at 45, then it is advised to maintain an annual step-up of 15%.”
Mutual fund SIP calculator
Assuming a 15% annual return on a mutual fund SIP of ₹9,000 per month, with an annual step-up of 15%, the SBI Securities mutual fund 3.659.01 crore) after 20 years.
So, if an earning individual aged around 25 starts a monthly SIP of ₹9,000 and increases it by 15% per year for the next 20 years, it would accumulate to around ₹3.65 crore at 45.
How to use SWP for a monthly pension?
The investor can use this maturity amount to get a monthly pension after retirement. What they need is to invest the entire ₹3.65 crore in SWP for the next 40 years, as the investor is retiring early at 45.
On how much monthly income would be required after 20 years, Jitendra Solanki said, “Today, ₹40,000 per month is an amount which is enough for a lower middle class senior citizen. Assuming 7% annual inflation, including healthcare and education, one would require around ₹2 lakh per month after 20 years.”
Suggesting senior citizens with some risk appetite to invest in SWP, Pankaj Mathpal of Optima Money said, “An investor can expect 6-7 per cent annual return on their SWP, which will help them to beat the annual inflation. And assuming the life expectancy of 85 years, then a senior citizen needs to plan for the next 40 years post-retirement.”
If a 25-year-old investor accumulates ₹3.65 crore in the next 20 years and invests this ₹3.65 crore in SWP for the next 40 years, then one can expect to get a ₹2 lakh monthly pension and a contingency fund of ₹6,73,41,557 or ₹6.73 crore still available, which can be used for any big medical emergency.
Disclaimer: This story is for educational purposes only. The views and recommendations above are those of individual analysts or broking companies, not Mint. We advise investors to check with certified experts before making any investment decisions.