Home / Money / Personal Finance /  How to build a dream corpus before you retire

The need for building a substantial retirement corpus is something that no prudent investor can play down. A clearly laid out retirement plan, supplemented by a sufficient corpus, grants one the power to not only be financially independent and sustain a proper lifestyle without worrying about expenses post-retirement, but also be able to meet any unforeseen expenses in the form of medical emergencies or just provide oneself a hedge against inflation. From an Indian perspective, it is also customary for the heads of the house to plan their retirement corpus in such a manner to ensure that they leave behind some wealth, as a posthumous legacy. These arguments go on to elucidate why the need for a sizeable fund cannot be undermined. Now that we have an endgame in mind, we are better equipped to look into some avenues that can be explored to achieve our dream corpus.

Before proceeding further, it is necessary that we consider an important point: inflation. If you are currently eyeing an 8-figure corpus of, let’s say, 1 crore, are you certain that it will hold up 15 years down the line? To put it bluntly, no. Given the exponential rise in prices that has occurred over the years, a realistic assumption to make is to consider that prices will keep rising steadily. With this concern out of the way, let us now understand what your portfolio should look like, to achieve your goal. A traditional approach to this question is to first organize and arrange your initial investment first. If one is eyeing a goal of 10 crore, an obvious head start can be achieved with a higher initial investment of, say, 25 lakh. This happens because a person in possession of a higher initial capital has a greater margin in terms of the annual return required in comparison to someone with comparatively lower capital. Our major objective now is to maximize these annual returns. A popular way to achieve this is through mutual fund schemes. There are certain Indian mutual fund schemes that have consistently provided investors with an annual return in double digits. But selecting the right funds is crucial.

For those who get a regular salary, there is the SIP route. A SIP or a systematic investment plan is an avenue that requires investors to set aside and invest a set amount at regular intervals of time. These minuscule investments, when taken as a whole, have the potential to grow one’s wealth exponentially. It is advised for investors to slowly, yet steadily keep increasing the amount they devote towards their SIPs. This allows them to start small, and still reach their target through a gradual increase in investment amounts. There are some common thumb rules that could assist the plan formulation for the SIP route. One such rule of thumb is the 15-15-15 rule, which basically implies that if you continue a monthly SIP of 15,000 for 15 years, and the mutual fund scheme that you have opted for is able to generate annualized returns of 15%, then you shall be able to amass a corpus of 1 crore at the end of 15 years. It is strongly advised to not keep the investments in SIPs static and to steadily increase the monthly SIP amount every year. For example, it’d be fairly easier for you to reach a target of 10 crore, by deploying a monthly SIP of 1 lakh for 20 years, at an annualized 12% return. However, it is highly unlikely for everyone to have that kind of money just lying around. In such a scenario, one may start small, at say, 50,000 per month, and then increase the monthly SIP amount by 10% every year.

Investors can also consider combining the SIP approach and their initial corpora, to speed up the entire process. Consider starting with an initial capital of 10 lakh. Considering the effect of compounding on this sum, you can be putting up around 10,000 every month for the next 20 years. Therefore, instead of having to set aside 1 lakh every month, a lower monthly SIP of 90,000 could help you reach your target. Added to this, effectively contributing one’s annual bonuses or any other windfall gains cumulatively to the retirement fund could go a long way in building a humongous wealth corpus. The prime deterrent that keeps people from amassing the corpus they desire is lack of discipline. Compounding can only work its magic if investors are committed to setting aside the requisite amounts as per their goals.

Anand K. Rathi is founder partner & investment manager, Augment Capital Services LLP.

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