Mutual funds have caught the fancy of the middle class in India. So much so that Indian households are taking money out of fixed deposits and savings accounts in banks and shovelling them into mutual funds, reports from Reserve Bank (RBI) has said. Crores of Indians are entrusting their hard-earned savings to mutual fund schemes through two modes – lump sum investment and systematic investment plans or SIP.
One of the key attractions of mutual funds is that they don’t expose the investor directly to the risk of investing directly into equities. A professionally qualified fund manager is there to shield you from excessive risk and fetch decent returns, which can rise disproportionately in the long-term. The 555 formula can help you to reap a corpus of nothing less than Rs 5 crore and a monthly pension that can be as high as Rs 2.37 lakh. In short, it directs one to a grand retirement plan. If it sounds too good to be true, read on.
Which plan is good for retirement
“Which plan is good for retirement?” is a question that is on top of the mind of many as well as on internet search. Those looking for one can find merit in the 555 formula. The digit 5 in the formula carries significance. One of the digits indicates that the investor is keen to retire 5 years before the standard age of 60, or at 55 years. Another 5 indicates that you should raise the SIP by 5% every year. The third 5 implies that you should continue investing till the age of 55 at least.
Begin at 25, see the calculation
Let’s use a step-up SIP calculator for this purpose. It would use 5% as the step-up rate in the step-up SIP calculator. Let our candidate begin investing at the age of 25 and begin with a monthly SIP of Rs 10,000. Let’s assume the scheme will generate an annual return of 12%. In 30 years, the SIP will generate generate a value of Rs 5.27 crore (Rs 5,27,34,060). A nominal out of the pocket investment of Rs 79.72 lakh over 30 years will fetch a return of Rs 4.47 crore.
Think in terms of monthly pension
How to get monthly pension from SIP? A 10% TDS on Rs 5,27,34,060 leaves the investor with Rs 47,370,654. If one puts this amount into an FD (fixed deposit) that gives an annual 6% interest, it will generate Rs 28.42 lakh, which on effect means Rs 2.36 lakh a month.
If you step into the world of mutual funds at an early age and invest doggedly for years, the results can be jaw-dropping as the 555 formula indicates. Personal Finance Business News – Personal Finance News, Share Market News, BSE/NSE News, Stock Exchange News Today
