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SIP Investment – Earlier the Better

January 20, 2008

Here is a case study on why should you start saving money by investing in mutual fund SIP as early as possible in your life.

Shankar, a reader of your column is 30 years old. He wants to retire at the age of 55 with atleast 8.0 crore [$2 Million by today’s rates] in his mutual fund kitty. Taking base case view of the Indian economic growth, we advise Shankar to start investing Rs 25,000 every month for the next 25 years and assume he gets a compounded returns @ 15% to meet his investment goal ~ Rs 8.2 crore.

Investment Pattern -2:
However, Shankar cannot invest Rs 25,000 every month today and he tells us that he can invest just Rs 15,000 / month and wants to add Rs 5,000 for SIP every 5 years.

SIP of Rs 15,000 / Month from 2007-2012 + Holding period from 2012 to 2032. All yields at 15% – Rs 2.20 crore in 2032
SIP of Rs 20,000 / Month from 2012-2017 + Holding period from 2017 to 2032. All yields at 15% – Rs 1.45 crore in 2032
SIP of Rs 25,000 / Month from 2017-2022 + Holding period from 2022 to 2032. All yields at 15% – Rs 0.90 crore in 2032
SIP of Rs 30,000 / Month from 2022-2027 + Holding period from 2027 to 2032. All yields at 15% – Rs 0.54 crore in 2032
SIP of Rs 35,000 / Month from 2027-2032. All yields at 15% – Rs 0.31 crore in 2032

So at the age of 55, Shankar would have just Rs 5.4 crore

The method of averages don’t work here. You are seeing the obvious difference. So set your own goals for retirement and before spending on your Nautica or Nike in the Mall, invest in your SIP and whatever remains just blow it as you like it 🙂

Questions and comments can be sent to feedback @ dalalstreet dot biz

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