Retirement goals: Here's how you can build a Rs 10-crore corpus

A sizeable retirement corpus is a necessity for a worry-free life of an elder but most of us do not realise it when we are young and don’t invest regularly towards building that corpus. It is almost always a bit late when we realise the urgent need of that corpus and end up regretting for the lot time. Experts emphasise that if someone starts your rest of the life with great comfort and worry free. If anyone starts retirement planning before 30 years of age, building a neat corpus is not an impossible task, experts say.

Generally, a person gets his/her first job at the age between 24 and 26 years. If he/she starts planning and investing for retirement at 28/29, it might work wonders. Let us consider a person beginning to invest for retirement at 29, which means he/she can get 31 years to build a corpus.

With a disciplined approach, building a fund of Rs 10-crore is not impossible at all. A degree of risk can also generate Rs 15 crore.

The way to Rs 10 crore

We consider a mixed investment portfolio such as equity-based mutual fund through SIP format, PPF, NPS and EPF. Besides one may have MF investment through lumpsums, fixed deposits and investments in equity market.

Mutual funds

Mutual funds are a key instrument to reach retirement goals. But you need to choose a diversified portfolio. For instance, you can plan your investments in mutual funds through SIPs. Experts say, one can begin a SIP with as low as Rs 500, while in one’s late twenties.

If a 29-year-old, who plans to retire at the age of 60, starts a monthly SIP of Rs 15,000, by 60 he/she would have invested almost Rs 56,00,000. Assuming a modest 13% return from any equity based mutual fund, he/she would get around Rs 7.6 crore at the age of 60.

If the person is able to take more risks and invest in purely equity-based direct growth fund, the return would be around 15%. That would give the person a comfortable corpus of around Rs 12.2 crore.

NPS

Besides mutual funds, National Pension System (NPS) is one of the best equity-based and safe retirement options till date. Being a young investor, one can invest 75% of your monthly corpus to equity and the rest in corporate and government bonds.

This investment pattern might get you a yearly return of at least 11%. If the person invests only Rs 4,000 per month for a period of 31 years, it will yield about Rs 1.1 crore. Out of this corpus, Rs 61 lakh will be paid at the age of 60 years.

The rest Rs 40 lakh would be used to provide annuity. At 7% annuity rate, the person would get a monthly pension of around Rs 26,000 for the rest of his/her life.

PPF

Mutual funds and NPS both are equity-based savings instruments. For a fixed-return portfolio we might consider Public Provident Fund of PPF investment.

Public Provident Fund (PPF) is another option to consider. Even though PPF comes with an initial lock-in period of 15 years, it is fully guaranteed by the Central government that offers long-term returns at a 7.1% interest rate, compounded annually.

Depositors can also extend their investments indefinitely in a block of 5 years, after the expiry of the initial 15-year lock-in period.

If a person deposited Rs 1.25 lakh (yearly limit is Rs 1.5 lakh) every year in the PPF account for 31 years at 7.1% interest rate, after the lock-in period is over, the maturity amount will be around Rs 1.4 crore. The person has invested only Rs 39 lakh and but would get Rs 1 lakh as interest. The entire amount is fully exempt from taxes.

PPF can also help meet an individual’s long-term financial goals, said Narayan Jain, a tax expert.

EPF

Employee provident fund or EPF is a government-guaranteed savings instrument which gives the highest interest rate of 8.5%. This is the best secure and safe investment option yield highest return.

According to the latest guidelines by government of India, any person’s basic salary would be 50% of his/her full salary. We consider that the person’s basic salary would be Rs 30,000 per month. Then after the entire period of 31 years, the person will get around Rs 89 lakh in return.

For this the sole contribution of the person is only Rs 12.5 lakh, employer will contribute another Rs 12.5 lakh and the rest is interest income.

Total corpus

With these four instruments the person can get Rs 7.6 crore, Rs 1.1 crore, Rs 1.4 crore and Rs 89 lakh, i.e. a total of Rs 11 crore at the time of his retirement at 60 years. Besides he can have a monthly pension of approximately Rs 26,000 from NPS.

“To get this corpus at the age of 60, the person has to invest around Rs 29,000 per month along with the EPF contribution. That means the salary of the person should be at least Rs 60,000/pm, otherwise it is tough to achieve the corpus. Different corporate and software or banking companies often offer this salary to a person aged 28-30 years,” said Nilotpal Banerjee, an investment advisor.

If the individual has any investment in real estate property, then it would be a cherry on the cake.

“This is just an idea. The total monthly investment stands at little less than Rs 30,000. If a person invests more than this amount, then he/she would certainly get more retirement corpus,” added Banerjee.