Megical Formula of 15 to retire in your 30's

30 Sep 2018

Retirement cannot be wished away and everyone will stop working one day. The pay cheques will stop coming, but your living expenses won’t end but keep rising due to inflation. Worse, some of the more critical expenses like healthcare will be growing faster than the overall inflation. The sooner you start saving for that phase of life, the more comfortable your retirement will be. However there is an urge in some working individuals to get retire early in their 30’s. So here is a formula of 15 for such individuals to create a corpus of 1 crore for their retirement.

Working individuals in their 20’s should definitely look for such an investment goal to retire early for a decent retirement corpus. An investor must follow the Formula of 15, i e. Rs 15000 invested for 15 years in an asset class (Equity mutual funds) which gives a 15 % CAGR(compounded annual growth returns) will make it to a retirement corpus of 1 crore. This target of reaching eight figure of 1 crore may seem difficult but a disciplined investor with consistency can easily achieve it in his /her 30’s. Above all the tax liability on Equity mutual fund remains tax free for investments above one years.

Once you reach the goal of 1 crore put this money in debt funds (Monthly Income Plan {MIP}), a category of mutual funds to receive regular income from your hard earned corpus at an moderate 9% rate of return.

Thumb Rules which will keep you on track

1. STAY DISCIPLINED: - Whatever amount you start with, do not miss on your monthly investments. As your salary increases, try to increase your monthly investment periodically to achieve your goals ASAP.

2. DIGEST VOLATILITY: - Equity as an asset class is dynamic and volatile in nature. Do not get panic if you see your valuation below the principle amount. It is an opportunity to accumulate aggressively at lower levels, it brings rupee cost averaging and ultimately when market do better you tend to achieve your goal faster.

3. PERIODICAL TRACKING: - To begin with avoid sectorial bets, invest in Multi cap equity funds for long term and track the performance every year so as to keep a watch on funds performance as per expectations. Before making any change take professionals view because entry and exit are associated with cost.

Comparison of equity mutual funds with other asset classes like bank FDs, RDs, gold and real estate would make your investment horizon clearer. Below is the comparison of various asset class.

If we save Monthly 15,000/- rupees for 15 years in Recurring Deposits, Equity Mutual Fund SIP and Gold and we consider Expected Rate of Returns ** as 8, 15 and 9 % so Maturity Amount will be: 5225177, 10152946 and 5733657 where tax liability will be there in gold and also as per bracket in recurring deposits but Equity Mutual Fund SIP’ maturity amount will be tax free.

(**The returns are based on past performance of the respective asset class and may vary in future depending on various factors)Written By:

Rahul Gehlot, (Chief Operating Officer at Investocafe and registered SEBI investment advisor)

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