The comfortable pursuit of financial goals is the passport to financial independence, especially after retirement, when one does not have a regular income in the form of a salary. The unfortunate part is, though salary stops, the need for regular monthly expenditure doesn’t. Let’s see how the SIP calculator can help you plan your goal of financial independence after retirement.
Remember the SIP calculator is free and available online.
Simple but powerful
It helps one to build assets through regular investment in mutual funds, something that the Indian middle-class has taken to in large numbers.
Systematic Investment Plan or SIP has become the messiah of the middle class. The net result, the inflow into the market through this method of investment breached the stupendous amount of Rs 20,000 crore – or well over Rs 900 crores every trading day – in April for the first time and further rose close to Rs 21,000 crore in May.
Let’s find out how this calculator can help one to mobilise a fund of Rs 8 crore if he/she begins earning at 25 years. All major banks and popular AMCs such as SBI, HDFC, Nippon, HSBC and onine investment portals including AMFI (Association for Mutual Funds in India) offer these calculators.
Step-up calculator
Let’s use a step-up SIP calculator that allows an annual rise in the SIP amount too. The rate of increase of SIP can be in tandem with one’s rise in income/salary. The calculator allows one to chart the journey to this goal in a smooth calibrated manner.
Say this fellow begins earning and investing from the same year. So, we have to find out how the calculator can help determine the quantum of regular investment to sail to his goal.
Believe it or not, our investor has to begin investing only Rs 9,000 a month to attain the goal of making Rs 8 crore by the age of 60.
Considering that one’s salary usually goes up and he/she can invest a little more every year, this amount can only go up.
Raise at a small rate
Let’s assume he will raise his SIP annually only by 4%. It means the SIP of Rs 9,000 in the first year will grow to Rs 9,360 (= Rs 9,000 + 4% of Rs 9000) in the second year and so on.
In the calculator he/she needs to key in a few simple information.
First, he/she types in the initial amount he can invest every month. For the moment, let’s assume a monthly payment, though one can make weekly, quarterly and even daily investments too.
Then he/she has to type in for how many years he/she wants to continue the SIP. In our instance, it will be 35 years before he retires (60-25=35). So he can continue investing between 25 and 60 years at a stretch.
Expected rate of return
He/she also has to type in for how many years or what rate of returns he/she is expecting. A 12% return in the long term is a rule of thumb and easily attainable if one is investing in equity funds.
If the rate of return eventually exceeds 12%, the investor will end up making more money.
Now, he/she has to type in the rate at which the SIP can be increased. To be on the side of caution, this rate should be low so that one can easily achieve it.
Then click on “Calculate Now” to see the final accumulated total value.
In our case, we have hit a total value of Rs 8.06 crore.
Tweak to find out
The investor can easily tweak the SIP amount and period to find out what amount he/she can invest comfortably every month and what corpus will it generate.
All the variables from the initial SIP amount to the rate of expected return to the duration of the SIP and the rate of increase can be tweaked to arrive at a figure that he/she is comfortable with.
The most important point to remember is that the SIP works on the powerful engine of compounding. It runs on the fuel of time. If one allows more years for compounding to operate, it will accelerate wealth generation.
Therefore, the trick is to allow more time for the money to work. The sooner you can start investing in life, the bigger wealth you can generate.
If you want to coast to your financial goal, the SIP calculator can be a powerful tool. It will help you pace your journey to your convenience. Personal Finance Business News – Personal Finance News, Share Market News, BSE/NSE News, Stock Exchange News Today
