I want a corpus of Rs 1 crore in 20 years
Hi Fpguru,
I am investing Rs. 5,000/- p.m. in Sensex stocks with a target of 20 yrs for building retirement corpus. By 20 yrs I would have invested 12 lakhs. My target is 1 crore. I have chosen this approach as equity offers best chance for building retirement corpus. Please let me know my approach is correct.
Regards,
K.R. Harish Kumar
Dear Harish,
We thank you for visiting our website & asking us a question. For a twenty year period you have chosen the right investment avenue, equity. In the long run, no instrument gives returns higher than equity. This fact has been proven time & again. If you look at the Sensex, it has historical returns of 18% p.a. approx since inception. This includes all those rises & falls. Essentially equity is a long term product in which you should remain invested for some time before the benefits accrue.
If we expect the above returns in next twenty years, then your Rs 5,000/- invested every month will become Rs 1.15 crores in the same period. This meets your target. If we keep in mind some deviation from historic returns & expect atleast 15% p.a. returns, then corpus accumulated will be Rs 75 lacs. To achieve the target of Rs 1 crore, you will need to invest an additional Rs 1,700/- p.m. i.e. a total investment of Rs 6,700/- p.m. to achieve this goal in twenty years assuming 15% returns.
Twenty years is a long time & any investment made for the long run has one crucial advantage- time. You need to invest in good stocks or mutual funds, be disciplined & patient & you will slowly reap the benefits of compounding. Keep your investments going & do not worry over short term market fluctuations, you will see that your goal is within reach!
Hope this solves your query!
Regards,
Fpguru.com
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Comments
2. Market swings are part & parcel of the market. But when you are taking an average rate of return it includes both upsides & downsides.When we assume 15% returns, we don't mean 15% returns per year constant but the average of 20 years. Also if choosing mutual funds is a problem, you can opt for index ETF's.
3. Any investment requires periodic reviews. You can't sleep for 20 years & then wake up. An annual review is a must for your financial plan & investment plan.
Hope this answers your queries!
Thanks & regards,
Fpguru.com
The answer provided has taken all points into consideration. The answers to your queries are as belows-
1.Mr Harish has asked for a target corpus of Rs 1 crore in 20 years, not Rs 1 crore in present terms in 20 years. When the target is mentioned you don't need to inflate the amount further. Also inflation affects expenses i.e. means withdrawals. If he is not withdrawing from the fund, it doesn't matter as the amount will compound.
Answer contd
1. firstly you never accounted for inflation which will have an average of about 7%(disregarding its current near 10% value) so your average rate of return decreases to about 7%
2. If you invest in an index you need to select the correct mutual fund which has its own commission and has its own set of problems which are related to market swings.
3.What is to say that the fund you invest in lasts for 20 years??
thanking you in advance for the reply
i culdnt solve dis..!! as a quest..:P
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