The goal of building a retirement fund of ₹5 crore may always appear intimidating, more so for salaried investors who have to manage their monthly expenses and goals. However, with consistent investing and the power of time and equity, the hard work may be done silently in the background.
The math is simple, and with systematic investment plans (SIPs), an investor saving around ₹95,000 every month can easily reach and surpass the goal of building a ₹5 crore retirement fund in 15 years, as long as the investment portfolio is equity biased.
The maths behind long-term wealth creation
The trick to compounding is to have the right combination of three elements including constant contributions, the passage of time, and growth that is linked to the market. With an average return of 12 percent per annum, which is a fair estimate for equity mutual funds over the long term, the figures are quite enticing.
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Someone who has already saved a sum of about ₹30 lakh and is contributing another ₹95,000 per month for the next 15 years can watch the overall sum swell to almost ₹6 crore. This is achieved not by taking bold investment decisions but by simply sticking to the investment and letting the magic of compounding happen.
Why consistency matters more than timing
Market fluctuations may tempt investors to hold back or make changes to SIPs during periods of market downturns. But SIPs are actually created to manage market fluctuations by averaging the cost of investments over time. Making changes to SIPs may reduce the effectiveness of compounding, even if the monthly investment looks quite large.
Investors may be concerned about having too many schemes of mutual funds in their portfolios. While it is true that having fewer schemes to track can be easier, the number of schemes does not necessarily affect the quality of the portfolio. What really matters is whether the portfolio is well-diversified in terms of market capitalization, investment styles, and objectives.
Having too many schemes in the same category, such as mid-cap or flexi-cap funds, is not necessarily inefficient if each scheme adopts a different strategy. The problem may arise if there is too much concentration in thematic or sector funds, which may increase the risk of market volatility during unfavorable market cycles.
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Review, don’t react
Regular portfolio analysis is necessary, but it should be done in terms of alignment and not performance. It is better to check if the asset allocation is still in line with the risk tolerance, time horizon, and retirement objectives, rather than acting on market movements.
In the long run, the achievement of a retirement portfolio of ₹5 crore is more about remaining invested, remaining diversified, and remaining patient.
{News Ei Samay does not provide investment advice anywhere. Investment and trading in the share market or any field involve risk. Proper study and expert advice are recommended beforehand. This news is published for educational and awareness purposes.}
