SIP Plan: In the present scenario, people do not want to wait till 58 or 60 years to retire. Rather, 50 has become the new retirement age for a lot of people. However, it is not easy to achieve financial freedom by the time one is 50 years old, especially on a low salary. People who are salaried employees usually spend their money on their daily expenses and responsibilities during the early stages of their careers.
SIP Plan: Smart retirement strategy for salaried investors
For instance, suppose a man named Rahul (not a real person) is a 35-year-old and was worried about his retirement. Till then, he had not been able to save a lot for his retirement. This made him worried about his life after retirement. Rahul decided to set a goal to save Rs 50 lakhs by the time he was 50 years old. This would give him 15 years to save for his retirement.
But after seeking advice from a financial advisor and understanding the impact of inflation on his money, Rahul changed his goal. Assuming an inflation rate of 5 per cent per annum, Rs 50 lakhs would be equivalent to only Rs 30-35 lakh after 15 years. Hence, Rahul changed his goal and decided to save over Rs 70 lakh.
SIP Plan: Best option for average salaried investor?
Once the goal was set, the financial advisor recommended that a portfolio be built through equity investments. Just like Rahul, most people, including you, may feel that investing in the stock market is only for high earners. However, this is not the case.
An average salaried person can also build a portfolio of Rs 72 lakh by the age of 50. This is possible only if you understand the potential of SIP, as well as the significance of starting early and taking advantage of compounding.
How to achieve the goal in 15 years
If your goal is to accumulate Rs 72 lakh through SIP in 15 years, there are two key things you need to understand: how much to invest every month and the expected rate of return on that investment.
Let’s assume you have an average salary and, at the age of 35, you can invest Rs 10,000 per month in an SIP. To reach Rs 82 lakh in 15 years with this investment, you would need an annual return (CAGR) of around 17 per cent.
But considering the inflation rate of 5 per cent per annum, Rs 72 lakh today would be equivalent to roughly Rs 39–40 lakh in today’s purchasing power after 15 years.
| Annulised Return | Monthly SIP |
| 17% | Rs 18,000 |
| 12% | Rs 30,000 |
| 10% | Rs 35,000 |
You can easily check this using the ET Now SIP calculator, which is available on most investment platforms.
Understand it in simple terms
Rs 18,000 per month × 15 years × around 17 per cent annual returns = Rs 1,49,21,820
Note: After accounting for 5 per cent annual inflation over 15 years, a future amount of Rs 1,49,21,820 would be equivalent to approximately Rs 71–72 lakh in today’s purchasing power.
SIP Plan: Which funds can get you high returns?
While making an investment in a mutual fund, it is also necessary to consider a few factors while making the selection. Also, it is necessary to look at the portfolio of the mutual fund so that you can understand the stocks in which the mutual fund is heavily invested.
- Nippon India Small Cap Fund – 20.26%
- Mirae Asset Large & Midcap Fund – 18.82%
- SBI Small Cap Fund – 18.66%
- Edelweiss Mid Cap Fund – 18.39%
- HDFC Mid Cap Fund – 18.35%
- DSP Small Cap Fund – 18.17%
- Invesco India Mid Cap Fund – 18%
- Franklin Build India Fund – 18%
- Kotak Midcap Fund – 17.63%
- Baroda BNP Paribas Midcap Fund – 17.50%
Why is SIP a Better Option?
Also, with an equity SIP, you don’t have to worry about market ups and downs. You invest a fixed amount every month, whether the market is going up or coming down.
Also, through rupee cost averaging, you get more units when the market is down, which reduces your average cost of purchase. Over the long term, an equity SIP has the potential for earning a good return of 15 per cent to 18 per cent annually.
(Disclaimer: The above article is meant for informational purposes only, and should not be considered as any investment advice. ET NOW DIGITAL suggests its readers/audience to consult their financial advisors before making any money related decisions.)
